We hypothesize that managers who receive high equity-based compensation have greater incentive to avoid ownership dilution by timing their seasoned equity offers to periods when investors temporarily overvalue their stock. We provide empirical support for this hypothesis using a measure of equity-based compensation that reflects the sensitivity of the top five executives’ wealth (based on ownership of stock, options, and restricted shares) to a 1% change in stock price. We find that firms associated with high equity-based compensation for top executives experience abnormally low stock returns and relatively unfavorable changes in operating performance in the three-year period following the issue. Overall, the findings support the premise that managers whose wealth is most sensitive to stock price changes are more likely to act in the interest of current shareholders by issuing equity when they believe their stock is overvalued.

Quarterly earnings conference calls are becoming a more pervasive tool for corporate disclosure. However, the extent to which the market embeds information contained in the tone (i.e. sentiment) of conference call wording is unknown. Using computer aided content analysis, we examine the incremental informativeness of quarterly earnings conference calls and the corresponding market reaction. We find that conference call linguistic tone is a significant predictor of abnormal returns and trading volume. Furthermore, conference call tone dominates earnings surprises over the 60 trading days following the call. The question and answer portion of the call has incremental explanatory power for the post-earnings-announcement drift and this significance is primarily concentrated in firms that do not pay dividends, illustrating differences in investor behavior based on the level of cash flow uncertainty. Additionally, we find that a context specific linguistic dictionary is more powerful than a more widely used general dictionary (Harvard IV-4 Psychosocial).