The Impact of Executive Verbal Communication on the Convergence of Investors' Opinions

This paper studies the influence of executive verbal communication on the convergence of investors' opinions, defined as reduction of differences in investors' valuations. Building on the corporate communication and sense-giving literatures, we argue that executive verbal communication impacts investor opinion convergence through its influence not only on disclosure of new information, but also on the comprehensibility and credibility of the information conveyed. Accordingly, we hypothesize that the newness, simplicity, and unscriptedness of executive verbal communication are all positively associated with investor opinion convergence. We also argue that the effect of executive communication on investor opinion convergence will be amplified when investors have a greater demand for information as would be the case for those firms with higher earnings uncertainty. Using a unique research design and second-by-second intraday stock trading data from 10,415 conference calls of 847 publicly listed firms between 2005 and 2012, we found strong support for our predictions.