Institutional Trading and Managers' Complex Disclosure: Evidence From Conference Calls

Abstract

This study investigates the impact of managerial linguistic disclosures on institutional trading behaviors during earnings conference calls from 2006 to 2016. Utilizing the linguistic Fog decomposition methodology on textual analysis, it analyzes how the linguistic complexity of managerial communication influences institutional ownership changes. Findings indicate that both obfuscation and informativeness of managerial discourse significantly affect institutional trading, with effects varying based on the informativeness of post-call analyst reports. This impact is more pronounced under conditions of earnings quality uncertainty, suggesting a heightened reliance on managerial cues by institutional investors during such periods. Additionally, the study differentiates responses among investor types: transient investors are more sensitive to linguistic cues, while dedicated and quasi-indexer investors focus on the informational content of disclosures. These insights enhance understanding of how managerial communication and analyst report informativeness shape institutional trading behaviors through linguistic complexity's influence on institutional ownership.