Analysts’ and Managers’ Use of Humor on Public Earnings Conference Calls

We investigate whether the use of humor during public earnings conference calls influences the content and outcomes of the calls. Earnings releases are key events for corporations and the investors and analysts who follow them. In conjunction with the earnings release, many companies also hold public earnings conference calls, which represent an important opportunity for senior management to discuss their company’s performance and for analysts to ask senior management about past performance and future prospects.

In this setting, we argue that analysts and managers use humor to influence the content and outcomes of the calls. For example, analysts could use humor to maintain a positive relationship with management or to soften a pointed question, and managers may use humor to bring positive emotion into an otherwise uneasy discussion of negative company news. In our study, we specifically ask:

  • What analyst and manager characteristics are associated with the use of humor on earnings conference calls?
  • Does the use of humor on earnings conference calls influence the content of the calls?
  • How do market participants respond to the use of humor on earnings conference calls?

These questions are important because they address both analysts’ and managers’ incentives to influence conference call outcomes, and humor is one potential mechanism to achieve these objectives. To answer these questions, we analyze the transcripts of over 80,000 public earnings conference calls during a 14-year period. In our analyses, we focus on the use of humor during the conference call Q&A session, where the back-and-forth exchanges between analysts and managers on earnings conference calls allow us to examine the use of humor as a communication tool.

We first identify each instance of laughter during the call, then we create an algorithm that identifies the speaker (analyst or manager) who prompted the laughter. We identify 16 percent of the analysts in our sample as using humor on a call at least once, and 29 percent of all companies in our sample as having a manager who uses humor at least once. Overall, our results suggest the humor in our sample is not confined to a small number of analysts and managers who consistently use humor on calls with each other. Instead, we document that humor on conference calls appears to be relatively dispersed.

We investigate the determinants and outcomes of analysts’ use of humor on conference calls and find that analysts are more likely to use humor when they maintain a favorable stock recommendation on the company, cover fewer companies, and have more experience covering the host firm. Consistent with our expectation that analysts use humor to soften negative or difficult questions, we find that negative tone in an analyst’s question is associated with an analyst’s use of humor. We also find that analysts who use humor are allowed to ask longer questions and receive longer responses from management than other analysts on the call – evidence that humor is associated with immediate benefits on the call.

We also consider the determinants and outcomes of managers’ use of humor on conference calls. We argue that managers use humor to send a positive signal to the market and that the effects of manager humor vary with the nature of the information discussed on the call. We find that managers are less likely to use humor on a call when the tone of analysts’ questions is negative, suggesting managers are deliberate about when to use humor. Further, our results indicate that managers are more likely to use humor if an analyst first uses humor on the call. We also find that the market reaction in the three days surrounding the conference call is more positive when managers use humor, a result that is partially driven by a muted reaction to negative manager tone when managers use humor. Additionally, our tests of analysts’ reactions indicate that managers’ use of humor is generally associated with upward revisions in analysts’ stock recommendations shortly after the call.

In additional analyses, we examine media coverage of host firms immediately following conference calls. We find increased media coverage following the call when managers use humor to deliver positive news, evidence that managers’ use of humor on public conference calls shapes the broader conversation in ways that are favorable to the firm. Finally, we find that managers’ use of humor is positively associated with the tone of subsequent media coverage.

Our study provides evidence that humor plays a meaningful role in analysts’ and managers’ interactions on public earnings conference calls. Further, the effects of humor are not limited to these interactions: Humor also has a significant effect on subsequent analyst behavior, stock market reactions, and the volume and tone of media coverage of the firm.

This post comes to us from Professor Andrew C. Call at Arizona State University, doctoral student Rachel W. Flam at Texas A&M University, Professor Joshua A. Lee at Brigham Young University, and Professor Nathan Y. Sharp at Texas A&M University. It is based on their recent article, “Analysts’ and Managers’ Use of Humor on Public Earnings Conference Calls,” available here.

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