The Power of Voice: Managerial Affective States and Future Firm Performance

In this study, we measure managerial affective states during earnings conference calls by analyzing conference call audio files using vocal emotion analysis software. We hypothesize and find that negative affect displayed by managers discussing their firms’ results and prospects is informative about the firm’s financial future. In particular, we find that managers exhibiting negative affect are less likely to meet or beat earnings expectations over each of the three subsequent quarters. However, market participants do not immediately impound these implications. Negative affect is not associated with analyst forecast revisions of next quarter’s earnings. Over the subsequent 180 trading days, cumulative abnormal returns are negatively associated with negative affect, revealing that the market eventually impounds the implications of negative affect into price. Together our findings suggest that vocal cues contain useful information about firms’ fundamentals, incremental to, and of comparable magnitude to, qualitative information conveyed by the linguistic content.