Does an Analyst's Access to Information Vary with the Favorableness of Their Language When Speaking to Management?
Posted: 6 Jun 2016 Last revised: 22 Dec 2019
Date Written: March 22, 2017
Abstract
We examine whether analysts that use more favorable language during earnings conference calls subsequently issue more accurate earnings forecasts. Using a large sample of earnings conference calls from the 2004-2013 period for S&P 500 firms, we find a significantly positive relation between an analyst’s tone during a firm’s call and the accuracy of the analyst’s next quarterly earnings forecast for that firm. We find a similar relation for analysts that praise a firm’s management during the call. Our findings are consistent with the favorableness of an analyst’s language reflecting their access to a firm’s management. In additional analyses, we find that female analysts, analysts with less general experience, analysts at smaller brokerage firms, and analysts that cover more industries, on average, use significantly more favorable language during earnings conference calls. Overall, we contribute a new proxy, incremental to other proxies, for the analyst-manager relationship.
Keywords: Forecast Accuracy, Conference Calls, Textual Analysis, Regulation FD
JEL Classification: G10, M41
Suggested Citation: Suggested Citation