Management's “irrelevant Answers” And Market Reaction

Adequate information disclosure is at the core of capital market development.In the past,company management usually used declarative disclosure channels such as earnings announcements and prospectuses to communicate information to the public investors.Nowadays,the development of information technology has provided companies with more opportunities for close-up communication with public investors,enabling interactive information disclosure to meet the diverse and heterogeneous information needs of investors.Management has a high degree of discretion in terms of the content and scope of interactive information disclosure.For the sake of maintaining the company’s image and their own interests,management often tends to disclose good news while covering up or obscuring bad news.Therefore,they may employ strategic behaviors in interactive information disclosure scenarios to confuse investors and avoid or mitigate the negative impact of any unfavorable news.How these interactive strategic behaviors affect the effectiveness of company information disclosure,and whether investors will ignore the negative news as management desires,currently has little relevant research,making it difficult to draw solid conclusions on the matter.Against this backdrop,this paper innovatively focuses on the irrelevant answers of listed company management in the process of interactive information disclosure and proposes a metric for measuring the degree of irrelevance using text analysis methods and machine learning algorithms.This paper further investigates the motives and influences of manager answers’ irrelevance,presenting a more complete picture of managers’ irrelevance answers.The research conclusion verifies the effectiveness of the irrelevance metric constructed in this paper,enriching the analysis approach to Chinese interactive text information.Additionally,the paper expands the research perspective in the field of interactive information disclosure and it is with high research significance.In the current situation where scholars’ research on management’s interactive information disclosure strategies is relatively limited,the research findings of this paper can help the audience of company information disclosure to comprehensively and systematically understand the causes and consequences of management’s evasive interactive strategies,thus enhancing the audience’s interpretation and utilization efficiency of relevant information.The main sections of this paper demonstrate how to quantify the degree of management’s irrelevant responses,what motivates such behavior,and the impacts of such behavior.Specifically,in terms of quantifying the degree of management’s irrelevant responses,this paper first used computer crawler methods to obtain the required text information from events such as earnings conference calls and the Shanghai Stock Exchange’s interactive platform.Then,the paper utilized these text information to train the Word2 Vec model,a classic natural language processing method,to examine the semantic similarity between elements in the Q&A texts.After that,the paper combined the cutting-edge soft cosine distance method in the community Q&A field to determine the text similarity between questions and answers and constructed the metric for management’s irrelevant responses based on this.Regarding the motivation behind management’s irrelevant answers,this article finds through empirical research that the degree of manager answers’ irrelevance during earnings conference calls is a leading indicator of the company’s future performance,showing a negative correlation.In other words,the higher the degree of manager answers’ irrelevance during earnings conference calls,the worse the company’s future performance is likely to be.Furthermore,this article discovered that managers’ irrelevance answers during earnings conference calls can widen the bid-ask spread and reduce the liquidity of the company’s stock,indicating that management uses irrelevant answers to conceal information,thus supporting the argument that management resorts to provide irrelevant answers to avoid revealing negative information and confuse investors.Regarding the impact of management’s irrelevant answers,this article mainly examines its effect on investor behavior and on the overall information environment of the company,and conducts research on this through event studies.With regard to the impact on investor behavior,the article is concerned with how investors interpret management’s irrelevant answers,both for the studied company’s investors and for investors of other industry-leading companies.Therefore,the article uses the earnings conference of the studied company or industry-leading companies as the research event to examine the relationship between manager answers’ irrelevance during the conference and the company’s stock returns during the conference window period.Regarding the impact on the overall information environment of the company,the article uses the company’s subsequent earnings announcement as the research event to examine the relationship between manager answers’ irrelevance on the Shanghai Stock Exchange Interactive Platform and the speed at which the company’s stock price absorbs earnings information.In terms of the impact on investor behavior,this study primarily examines the effects of manager answers’ irrelevance on investors and the overall information environment of the company,using an event study approach.In terms of the impact on investor behavior,the empirical results show a significant negative correlation between the degree of manager answers’ irrelevance at earnings conference calls and the stock returns during the window period,especially for companies with low analyst coverage.Combining the research results on the motivation behind managers’ irrelevance answers(higher degree of irrelevance is associated with poorer future performance),it can be concluded that the market’s negative reaction to managers’ irrelevance answers is rational and correct.Additionally,the results indicate that the irrelevance answers of the management of industry leaders at earnings conference calls has a significant negative correlation with the stock returns of peer companies during the window period,suggesting a spillover effect of industry leaders’ irrelevance answers.Furthermore,this spillover effect is particularly evident when investors and management discuss negative content,when leading companies have higher levels of information disclosure and market position,when peer companies have lower market positions,and when there are shared analyst coverage.Combining the research findings,it can be concluded that investors of other industry companies primarily view the signals of potential poor future performance of industry leaders from the perspective of the industry outlook and make judgments of one for all and all for one.In terms of the impact on the overall information environment of the company,empirical results show that there is a significant negative correlation between the extent of management’s non-responsive behavior on the Shanghai Stock Exchange Interactive Platform and the efficiency of stock price information following subsequent earnings announcements.This negative relationship is particularly evident in companies with low auditor quality,low analyst coverage,and a high proportion of institutional investors.In addition,a lower degree of non-responsive behavior can also help reduce earnings announcement drift.These results suggest that management’s irrelevance answers on daily information disclosure platforms reduces the effectiveness of information disclosure and is detrimental to improving the overall information environment of the company.This mainly affects companies with high daily information needs of investors,including companies with poor information environments and well-known companies.In summary,this paper focuses on the irrelevant answers given by management during interactive disclosure of information by listed companies.Therefore,this paper innovatively extracts the textual feature of irrelevance from interactive disclosure materials through text analysis and machine learning methods.Through empirical research on the motives and effects of management’s irrelevant answers,this paper verifies the validity of this indicator.The empirical conclusions comprehensively cover the antecedents and consequences of managers’ irrelevance answers,which can help market participants strengthen their understanding of interactive information disclosure and benefit more from the communication process.The research findings of this paper also demonstrate the value of official interactive platforms such as performance briefing systems and the Shanghai Stock Exchange Interactive Platform as effective means of information disclosure,which validates the effectiveness of China’s characteristic information disclosure system and highlights the importance of information disclosure regulation.