Abstract. Using state-of-the-art machine-learning techniques, we find that managers communicate valuable information about their companies during earnings calls. Optimistic tone (FinBERT) predicts an increase in investment, productivity, and innovation followed by a tapering off over a multi-year horizon, consistent with rational belief updating rather than mood or manipulation. Conversely, stock returns exhibit an initial positive jump followed by partial reversals, indicating investor overreaction to managerial narratives. The asymmetric manager-investor response is amplified in hard-to-value firms, where uncertain fundamentals make reliance on incoming information stronger. Finally, we show that managers exploit investors’ predictable tendency to overreact by timing net equity issuance.
Coauthors. Yuting Chen (Dublin City U), George Constantinides (University of Chicago, NBER), Pablo Pastor y Camarasa (Ghent U), and Valerio Potì (UC Dublin).
Manuscript. SSRN draft coming soon.
Presentations. Corporate Finance Days at the University of Ghent, ECGI Corporate Finance and Governance Conference, London International Behavioral Finance Conference, Research in Behavioral Finance Conference at VU Amsterdam.