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Leader’s personality affects stakeholder response to bad news

'Sunny' leaders are better able to improve their firm's market position, study finds 

16 December 2014

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By Manju Manglani, Editor (@ManjuManglani)

A leader's personality can positively influence how stakeholders respond to news about the firm's financial performance, research has found.

The first study of its kind, it found that leaders who have naturally sunny dispositions are better able to increase confidence in their firm's future performance.

"Investors should be aware that there are human factors at play when they're listening to reports on firm performance," said Jenny Zhang, assistant professor at the University of British Columbia's Sauder School of Business and co-author of the paper.

"We tend to think managers are being strategic in their delivery, but sometimes they just can't help but be human - for better or worse."

The researchers tracked the way in which CEOs and CFOs communicated earnings to decipher their overall communication style.

Using a sample of 121 CEOs and CFOs, they examined transcripts of earnings reports delivered in conference calls, tabulated the frequency of positive and negative words used, and contrasted the information with organisational performance and resulting market activity.

They found that leaders who were inclined to express themselves with optimism conveyed this in their tone when disclosing firm performance - a tendency that could create an uptick in their firm's stock price.

The research suggests that leaders who use optimistic language are more likely to have a positive influence on their firm's market position.

The researchers also looked at which types of leaders tend to be more optimistic. They found that those who began their careers in a recession used less optimistic language overall.

In addition, they found that men tend to convey themselves more positively and that CEOs are generally more positive in firm communications than CFOs.

The research paper 'The effect of manager-specific optimism on the tone of earnings conference calls' is published in Review of Accounting Studies.



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