Are Managerial Vocal Cues Relevant to Debt Markets? Evidence from Credit Default Swaps
Abstract
We examine whether managerial vocal cues are relevant to debt markets. Using voice analysis technology, we derive managerial affective states from vocal cues during earnings calls and quantify their effects on Credit Default Swaps (CDS). We document a positive association between positive managerial affective states and changes in CDS spreads around the earnings call, even after controlling for quantitative earnings news and linguistic tone. Consistent with positive affective states being associated with risk-taking behavior, the results are more pronounced for riskier firms, firms under scrutiny, firms with higher information asymmetries, younger CEOs, and less informative verbal firm communications. The findings suggest that managers’ vocal cues provide incremental information about firms’ credit risk and that debtholders are aware of, able to acquire and integrate this kind of information into their decision-making.