How Incongruence Between Managers’ Tone of Voice and Word Sentiment Influences Security Analysts

Abstract

Maintaining favorable analyst recommendations is important to organizations and their management, as these recommendations provide stakeholders with expert opinions about organizations’ well-being. Hence, there is a strong impetus for managers to prevent analysts downgrading their organization. In verbal communication, such as in earnings calls, managers not only try to influence analysts via the words that they use, but also via the tone in which they speak (i.e., paraverbal communication). Paraverbal communication is both an extra channel of information for analysts, and a strategic tool managers may use to exert influence. On the one hand, management wants to signal trustworthiness through congruency in their communication, but on the other hand is inclined to offset negative information by speaking positively, or downplay expectations by using a negative tone when discussing positive information. Leveraging several state-of-the-art Natural Language Processing algorithms, using earnings calls’ audio and textual data, we analyze the incongruence in managers’ communication. We find that paraverbal communication affects analysts’ recommendations and show which paraverbal strategies characterize organizations that are least likely to get downgraded. Our study therefore contributes to the literature on corporate communication, demonstrating the importance of verbal tone in managing the relationship with market intermediaries (analysts). Furthermore, this is one of the first studies in management that utilizes audio data quantitatively.