Unraveling Managerial Tangents in Firm Disclosure: Concealing Issues or Being Exposed?

TL;DR

This paper introduces a new metric called the 'Topic-Switching Index' to quantify managerial evasion during earnings calls, revealing its negative impact on stock prices and demonstrating its predictability across models.

Contribution

It presents the first quantification of managerial evasiveness through topic switching using transformer models, adding a novel dimension to earnings call analysis.

Findings

Negative correlation between the index and stock prices

Predictability of the index across multiple classifiers

Topic switching as a significant, overlooked factor in earnings calls

Abstract

Earnings calls influence stock prices and are traditionally analyzed using sentiment and linguistic traces. Our research introduces a "Topic-Switching Index," a novel metric quantified through the transformer model FinBERT, to measure managerial evasion during Q$\&$A sessions in earnings calls. We find a negative correlation between this index and subsequent stock prices, indicating that investors penalize managerial evasiveness. This study is the first to quantify such evasive tactics, adding a new dimension to how earnings calls are understood and suggesting that topic shifting is an overlooked but significant factor. We also show the predictability of the index under three different classifier models and it stands out in all circumstances.