title: Tone analysis in earnings conference calls and role of corporate governance, evidence from FTSE100 firms
Creators: name: Al Balushi, Yasir
Publisher: name: University of Reading
Year: 2025

description: Existing literature has provided evidence that managers use voluntary disclosure as an impression management vehicle to manage stakeholders’ perceptions. From the agency theory perspective, managers’ engagement in impression management strategies is an opportunistic managerial behaviour that undermines the quality of disclosure and may cause capital misallocations. What is more, impression management techniques may increase when the media of disclosure is voluntary, less formal, and external auditors do not provide opinions of credibility. Thus, the present study focuses on tone analysis, where the tone is used as impression management techniques, in the context earnings conference calls. In the earnings conference calls context, the disclosure is voluntary, the audiences are sophisticated financial analysts who can detect potential deception inherent in such a context, and behaviours are influenced by a combination of regulatory and ritual codes. The study has a focus on tone management, a measure of managers’ use of negative and positive keywords, as an impression management technique. The objectives of this study are: (i) to measure the tone (thematic manipulation) of earnings conference calls as an impression management techniques used by managers, (ii) to examine whether managers engage in tone management when a firm’s financial performance varies, (iii) to examine the role of corporate governance, an architecture of accountability, in limiting tone management in earnings conference calls context. The study sample comprises FTSE100 firms listed in the London Stock Exchange (LSE) during 2005-2016. This study reveals three empirical findings. First, managers manage their disclosure tone in earnings conference calls to various extent both across the years and crosssectionally. Second, there is a significant difference between the manager’s disclosure tone iii in the presentation session and discussion session of earnings conference calls. Also, we find that managers’ tone is more positive in the presentation session when a firm’s financial performance is favourable compared to a firm with unfavourable financial performance. However, we do not find tone differential in the discussion session between firms with favourable and unfavourable financial performance. Overall, the results of managers’ tone analysis are mixed depending on which session of earnings conference calls they speak. Third, strong corporate governance mechanisms, such as active audit committee, active board, and independent directors, are negatively associated with tone management, and that indicates that strong corporate governance limits impression management. This study contributes to impression management literature by focusing on earnings conference calls context where the incentives for opportunistic managerial behaviour are severe. Also, the study contributes to the role of corporate governance in impression management techniques in less formal disclosure media.