Tips and tells from managers : how analysts and the market read between the lines of conference calls

The negativity of managerial word choice (managerial tone) on conference calls is a telltale indicator of a company's future. Specifically, increases in negativity, what we term bleak tone changes, strongly predict lower future earnings and greater uncertainty. However, decreases in negativity only weakly predict the opposite. To isolate the explanatory power of managerial tone, we control for negativity changes in the earnings press release and analysts' questions. Analysts and investors under-react when they extract value-relevant information from negativity changes. Consequently, a negativity-based trading strategy generates abnormal returns