Time and Tone: Detecting Deceptive Disclosures Using Response Latency

Drawing on cognitive models of deception, we examine whether management’s response latency during conference calls (i.e., the pause between a question and its answer) predicts deceptiveness in their interactive disclosures. Our findings reveal that a positive management tone following high response latency to questions predicts an immediate positive stock price reaction that reverses over time. This effect is not driven by information complexity, as complex responses elicit weaker immediate price reactions that are followed by a drift, reflecting that complexity increases the integration cost for users. Consistent with high response latency preceding deceptive disclosures, we find that the negative relationship between deceptive responses and future returns is more pronounced in firms with lower litigation risk, greater stock option incentives, and less scrutiny. Finally, in line with information manipulation theory from the psychology literature, we find that higher response latency predicts that managers’ responses contain less guidance, are more likely to be non-answers, have more boilerplate language, and exhibit higher levels of linguistic obfuscation and ambiguity. Overall, our results suggest that management response latency is useful for detecting deceptive responses in interactive firm disclosures.