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Being a “vague talker” or a “straight talker” when presenting financial results can affect market reaction

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Swiss Finance Institute
Friday, January 13, 2017 - 08:00

Prof. Alexander Wagner, SFI@UZH, presented his paper “In no (un)certain terms: Managerial style in communicating earnings news”, co-authored with Michal Dzieliński and Richard Zeckhauser at the American Finance Association / American Economic Association Meetings held recently in Chicago. The authors use textual analysis to classify managers into “vague talkers” and “straight talkers”. There is a notable difference in market reactions to managers who have a track record of straight, clear speech as opposed to vague speech.  Generally, the market believes future earnings announcements from straight talkers more and reacts more quickly to their announcements. Conversely, analysts and the stock market react more slowly and respond less to vague communications by managers. The evidence also suggests that large firms with vague managers have lower valuation ratios. 


Overall, the results show that earnings (“hard information”) and straightforward managerial explanations surrounding this information (“soft information”) strengthen each other. That is, they are complements, not substitutes.


Read more in Prof. Wagner’s article How does the use of vague words affect market reactions?