Contemporaneous verification of language: evidence from management earnings forecasts

• 成果类型: Article
• 署名作者: Baginski, Stephen; Demers, Elizabeth; Wang, Chong; Yu, Julia
• 署名单位: University System of Georgia; University of Georgia; University of Virginia; United States Department of Defense; United States Navy; Naval Postgraduate School; Nanyang Technological University
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-015-9347-6
• 发表日期: 2016
• 页码: 165-197
• 关键词: information-content; disclosure; tone; credibility; association; statements; dependence; returns

摘要

Research documents that linguistic tone is incrementally informative about stock returns. What remains a puzzle is the mechanism by which investors can assess its credibility. We examine whether contemporaneous information in management earnings forecasts serves as a timely alternative to ex post verification. We document that ex post verifiable quantitative news in unbundled forecasts, and characteristics of the linguistic tone itself, affect investors' pricing of tone. Consistent with higher quality signals enhancing the credibility of contemporaneous lower quality signals, we find that quantitative news verifies the associated linguistic tone; when the two signals have the same sign, the price effect of tone is stronger. Furthermore, the pricing attenuation of tone is increasing in the imprecision of the quantitative forecast, suggesting that lower forecast quality compromises the quantitative signal's credibility enhancement. Managerial incentives to inflate tone lead to the verification effect being greater for optimistic language, while management's use of hyperbole results in attenuation of the tone's pricing.