Publication: Journal of Business Communication
Article: Are investors influenced by how earnings press releases are written?
Blogger: Rob Stilson
This article investigates whether investors are influenced by how an earnings press release is written. FYI: Earnings press releases are voluntary but still serve to inform investors on the current state of their company.
The study consisted of gathering information on telecommunications and computer industry earnings press releases between 1998 and 2002 and analyzing how the press release immediately affected the companies share price. This was done via regression analysis with several control variables (i.e., company size, reporting losses or profits, and whether a firm’s earnings exceeded earnings expectations). The findings were quite interesting and also very applicable.
First, a more positive tone of voice in the earnings announcements positively affects market reaction but only up to a certain point. So, keep the report upbeat so that the investors don’t freak out if the news is bad. Additionally, a longer press release can actually diminish the positive market impact when a company announces unexpected earnings, so keep it short and to the point!
Numerical intensity (aka, the amount of quantitative information in the press release) can also diminish the profits a company reaps for unexpected earnings but verbal complexity does not. So, go easy on the charts, but feel free to whip out the thesaurus.
In conclusion, the results from this study help to shed some light on the psychology of investors and how they may react very differently to the same information depending on how it is presented. Some limitations of this study include only using telecommunication and computer industry companies. It would be interesting to look at how earnings press releases affect investors of other types of industries.