KEY CONCEPT

When delivering bad news in a meeting or by phone, the time of day can make a difference in how the news is received. By studying quarterly corporate earnings calls to analysts, researchers showed that the tone of the conversations was more negative in the afternoon than in the morning. In addition, the market had a tendency to overreact to bad news when delivered in the morning. 

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IDEA SUMMARY

It is standard practice for corporations to have a conference call with stock market analysts after quarterly earnings are released. In this call, executives make a presentation concerning the earnings report then take questions from the analysts. It is these conference calls that researchers from University of Virginia’s Darden School of Business and NYU’s Stern School of Business studied to determine what impact time of day can have on financial communications.

Accumulating data from 25,000 corporate quarterly earnings-related calls, the results of the research by Stern Professor of Accounting and Finance Baruch Lev and Darden Associate Professor of Business Administration Elizabeth Demers, appear unequivocal: the time of day directly impacts both the general tone of the communication, and the reaction to the communication.

Specifically, Lev and Demers, working with Stern doctoral student Jing Chen, found that:

• The tone of the conversations changed during the day. (The researchers used linguistic algorithms based on the use of certain words as the basis of their assessments.) In the early morning, the tone of the conversations was more positive, then became increasingly negative – “irritable and combative” according to the researcher – as the morning wore on. Immediately after lunch, when participants were rested and had eaten, the tone of the conversations became temporarily more positive than the late morning conversations; once again, however, the tone became more negative as the afternoon wore on. Finally, after the closing bell, which is a distressing event for analysts and financial executives, the conversations took on a more positive tone.
• The resoluteness of the conversations showed the same pattern. Resoluteness is a measure of inflexibility in the conversation. This inflexibility on the part of the speakers increased during the morning hours, abated after noon, then increased during the afternoon hours.
• The increasingly negative tone and inflexibility of the conversations as the morning and afternoon hours passed seemed to impact the market reaction to the conversations. Specifically, using controlled measures of the firm’s stock price fluctuation in the five hours after the beginning of the call, the researchers noted a distinct negative or positive reaction to the tone of the conversation, and especially the Q&A portion. It seemed that there was an overreaction to the conversation that over the next few days “righted” itself to more accurately reflect the substance of the call.

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BUSINESS APPLICATION

Intuitively, we know that most people are fresh at the start of the day, and wear down as the hours pass, notably in mid- to late afternoon. For many, this can mean a dip in productivity and creativity.

This research empirically demonstrates, however, that fatigue and stress can have a serious and even financial impact beyond these more well known effects. If we use the research described in this paper as a guide, business leaders would do well to:

• Schedule important (or potentially contentious) calls first thing in the morning and immediately after lunch.
• Be aware and attempt to mitigate any increase in the negativity of the tone or the inflexibility in their pronouncements as the meeting - whether face-to-face or through a conference call - becomes prolonged.
• Take advantage of “de-stressor” periods in their industries (for example, the time of day, month or year that might replicate the de-stressing effect of the ringing of the stock market bell for corporate financial managers). The weekly or monthly release of a government report, for example, might reduce the stress in a particular industry; schedule potential difficult calls during the hours after the announcement.

Obviously, the schedule of meetings and calls is often dictated by other factors. When there is a choice, however, managers and leaders should try to eliminate any scheduling factors that will unwittingly make an already challenging meeting even more difficult. 

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REFERENCES

“Oh What a Beautiful Morning! The Effect of the Time of Day on the Tone and Consequences of Conference Calls,” Jing Chen, Elizabeth A. Demers and Baruch Lev, Darden Business School Working Paper, December 1, 2012.

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