Linguistic Fundamentals in Earnings Press Releases

I re-examine the information content of earnings press releases (EPRs) by distinguishing tone, which captures optimism and pessimism and is the focus of prior research, and linguistic fundamentals (LF), which captures information content in non-tone language. I find after controlling for standard firm characteristics, LF positively predicts future cash flows, unlike tone, which generally negatively predicts future cash flows. I document a return continuation in LF, in contrast to the return reversal in tone documented in prior literature. My findings distinguish informative content in LF and misleading content in tone in EPRs.