Abstract: Verbal features of a text matter for its information content. We quantify a text's verbal features along two distinct dimensions: tone level and tone dispersion. We textually analyze question-and-answer (Q&A) sessions of earnings conference calls and employ the FinBERT model to measure tone level and tone dispersion. We find share prices respond more sensitively to earnings news accompanied with highly tone-dispersed Q&A sessions, and these Q&A sessions are associated with larger stock trading volume upon earnings announcements. These results hold after controlling for investor attention proxies, and alternative stories are discussed. Combined, our findings suggest that conference calls with higher tone dispersion produce a greater quantity of incremental information beyond cold financial figures, thus resulting in enhanced price impacts and heightened trading volume. Additional analyses verify this information production hypothesis.
Abstract: Mobile apps, iOS or Android apps downloadable onto smartphones and tablets, are becoming an important part of the global economy. Mobile apps facilitate earnings generation by being the primary (or an alternative) platform of product delivery, via in-app purchases or advertisements. and better customer engagement by leveraging insights derived from real-time user data collected by apps. We demonstrate that mobile app download is a leading performance indicator as mobile app downloads significantly predict subsequent quarter’s earnings. Notably app downloads predict earnings for all firms, not just firms that rely primarily on apps to generate revenue (i.e., firms with apps with in-app purchase options and in-app ad placements), but also brick-and-mortar firms with established brands that adopt mobile apps as an alternative way to deliver products. However, the investment community does not fully comprehend the value of mobile apps: we find that mobile app downloads significantly predict analyst forecast errors and future returns. A long-short strategy on abnormal downloads delivers an EW (VW) annualized return of 12% (9%). Analysts’ and investors’ misunderstanding appears to be concentrated in the subsample of firms where they cannot directly observe apps’ revenue generating capabilities, i.e., firms whose apps do not have in-app purchase options or ad placements. Importantly, firm disclosure on mobile apps in regulatory filings mitigates the predictability of analyst forecast errors and returns. Our study advances our understanding of new performance indicators of the digital economy and the role of disclosure in facilitating such understanding for the investment community.
Abstract: Amid state-level COVID-19 lockdowns, we compare firms filing financial statements during the lockdown (treated) to those reporting just before (control). Lockdowns significantly constrained social mobility and the sharing of soft information between managers and investors. In response, treated firms disclosed more accounting details, especially those requiring external funding or involving hard-to-value assets and substantial trade credits. Larger firms with extensive institutional ownership and broad auditor coverage exhibited fewer such tendencies. Increasing hard information improved earnings forecasts and curtailed external funding costs. Our findings suggest a shift from soft to hard information sharing during economic uncertainty, which helps alleviate the information asymmetry between corporate insiders and outsiders.
Abstract: We create a lexicon of 45 capital budgeting terms and document manager language usage in 96,568 earnings conference calls during 2010-2020. Managers often use technical language like cash flow, free cash flow, operating income, return on investment, and return on capital during conference calls. We substantiate the survey evidence of Graham and Harvey (2001) by demonstrating that managers actually use concepts like payback period and ROI in conference calls. Capital budgeting counts are associated with larger capitalization, higher fixed assets, and lower R&D intensity firms. Capital budgeting term usage and the number of words spoken by managers peak in the first quarter of the calendar year. This finding illustrates the information density of annual versus quarterly communications, since the majority of the firms have December fiscal year ends. We also document how manager’s word selections vary on the basis of whether or not net income is positive. If the firm has positive net income, managers use phrases like cash flow, free cash flow, operating income, and operating profit significantly more often than if net income is negative. In contrast, when net income is negative, managers have significantly higher counts of the aggressive non-GAAP phrase EBITDA. As Graham and Harvey (2001) emphasized, it is difficult to measure the forms and extent of formal capital budgeting techniques that are used in a firm since they cannot be directly observed. Their survey results went a long way in providing at least one indirect approach to capturing data on this important but elusive topic. We provide another lens through which we can gain a more precise understanding of the actual uses and practices associated with capital budgeting.
