"Stiff Business Headwinds and Uncharted Economic Waters": The Use of Euphemisms in Earnings Conference Calls

This paper studies whether euphemisms obfuscate the content of earnings conference calls and cause investors to underreact. I argue that managers' use of euphemisms can alleviate the impact of bad news and delay the market reaction to adverse information. Using a dictionary of corporate euphemisms, I find that their use by managers-but not by analysts-is negatively associated with both immediate and future abnormal returns, and their frequency moderates the negative market reaction to bad earnings news. Finally, stock underreaction is more pronounced on busy earnings announcement dates, when investor attention is distracted.