Timing can be crucial when it comes to communicating. It’s one of those simple rules of life. Whether you’re picking the right time to break up with someone or deciding when to confess that you’ve wrecked your father’s brand new car, there’s a rather delicate nature to picking the perfect moment to deliver news — and this is also true in the business world.

Oh What a Beautiful Morning! The Time of Day Effect on the Tone and Market Impact of Conference Calls” investigates a crucial yet oft overlooked aspect of earnings-related conference calls: Is there a change of conversational tone that occurs depending on the time of day the call is made? And if so, why does it happen?

Through what we believe is a first-of-its-kind examination, my colleagues and I document the impact of the time of day on one of the most important communications executives have with their firm’s constituents.

Intersecting Business and Biology

The basis of our research isn’t simply business and mathematics. Instead, there’s an inherent scientific element at play. For starters, we explain that fatigue — both physical and mental —leads to irritability and “a decline in executive function,” which encompasses everything from problem-solving abilities to one’s multi-tasking efficiency. Simply getting a short rest or improving glucose levels can do wonders for someone’s mood. But in the corporate world, rest — or even a snack break — isn’t always an option. And as fatigue sets in throughout the day, one’s mental capabilities may not be as sharp as they could be, a factor that can certainly impact the tone of communications.

Breaking Down Communications

So how can you measure the tone of conference calls?

We actually utilized two linguistic algorithms. By applying Diction 6.0 and the Loughran & McDonald dictionaries to more than 26,000 quarterly earnings-related conference calls made from 2001 to 2007 by well over 2,000 different firms, we were able to develop a “linguistic score.” More specifically, the algorithms used a list of words that were related to a certain tone — such as negativity — and looked at the propensity of those words within the transcripts of conference calls. With the Loughran & McDonald dictionaries, we used the “financial positivity, negativity and uncertainty scores” while we utilized Diction’s “optimism, pessimism and linguistic certainty” measures. For instance, a word that you would see as part of the Loughran & McDonald “negativity” dictionary would be “abandon” or “challenge.” The score produced reflects the number of incidences of these specific kinds of words — whether positive or negative — in a certain passage, providing insight as to the overall tone used during a call.

We focused on the question and answer portion of conference calls, which “is more natural and not as carefully scripted in advance by communications experts and the firm’s legal advisers.” By looking at this, we were able to analyze “the spontaneous tone” of the conference call, allowing a more honest look at the tone of the speakers.

The Impact of Tone

As we expected, there’s a rather noticeable correlation between the time of day a conference call is made and the tone it carries. As the morning goes along and “fatigue sets in,” communications become increasingly negative and “less forthright.” Around the midday break, mood sees an improvement. However, tone begins to go downhill once again as the afternoon continues. There’s a great importance to these communications, we note, as stock returns, trading volume and return volatilities respond to tone.

Ultimately, firms could gain simply by planning a conversation for a certain time of day.

This article was adapted from “Oh What a Beautiful Morning! The Time of Day Effect on the Tone and Market Impact of Conference Calls" by Elizabeth Demers, Jing Chen and Baruch Lev.