Are Investors Influenced By How Earnings Press Releases Are Written?

Abstract

This two-part study begins with a rhetorical analysis of the genre of earnings press releases. Then, a quantitative analysis uses capital markets data to assess the investor impact of tone and other stylistic attributes. The genre analysis explores the regulatory context, structural attributes, and dual informational-promotional role of earnings press releases, using individual releases as illustrations. The quantitative analysis explores the relation between the stock market reaction to earnings press releases and quantitative measures of style developed using elementary computer-based content analysis of a corpus of releases. Results suggest that tone influences investors' reactions. An explanation for this result is provided by prospect theory, which predicts that framing financial performance in positive terms causes investors to think about the results in terms of increases relative to reference points. Results also suggest that longer press releases reduce the market impact of unexpected earnings.