Good quarterly performance is something to brag about, but boasts from chief executives can backfire in the wrong circumstances. An experimental study involving accounting students finds that when the disclosure medium is a conference call, investors are more willing to invest if the CEO brags about company performance than if he or she is modest. By contrast, the same boast in a tweet inclines investors to be bearish. Humble tweets, meanwhile, make them bullish.
‘You can’t just take the same message and expect it to transfer in the same way across different media,’ says study co-author Frank Hodge, professor of accounting at the University of Washington. ‘You must consider people’s expectations before deciding what message to send.’
Hodge says venue influences those expectations. ‘People expect a little bragging in a conference call,’ he explains. ‘But social media is different: interactions are expected to be more personal.’ He adds that violating these norms affects investor credibility judgment, which in turn influences their investment judgment.
The researchers also studied investor reaction to ‘humblebragging’, an obnoxious yet increasingly popular communication style used on social media.
Humblebragging is distinct from bragging and modesty because the motive for false modesty is transparent. Here’s an example tweet from T-Mobile CEO John Legere: ‘When you focus on your customers, you win. When will the [other] carriers get it?’
Doesn’t that make you want to reach out and tweak his nose? Unsurprisingly, the researchers confirm that this is basically how it makes investors feel, too – regardless of disclosure medium.
If the tweet fits The results of two US studies suggest investors view social media as significantly less useful and less reliable than a firm’s IR website when it comes to gaining financial information about a company. Researchers say that’s because investors perceive a poor fit between the factual financial content and a communications channel traditionally used for softer, often non-factual information. ‘Unsophisticated investors tend to process financial information centrally [consciously] when it’s on a website and peripherally [unconsciously] when posted on social media,’ explains study co-author Neal Snow, assistant professor of accounting at Lehigh University. ‘That leads to different judgments about management credibility and the reliability of the information.’ Snow says the differences in judgment hold regardless of whether the information contains good or bad news. Curiously, however, in another experiment, investigators find that good news financial information posted on Twitter is somewhat better received when the firm normally tweets mainly social information, suggesting companies can reap benefits when posting financial information selectively rather than in the normal course of business. Moreover, when bad news is reported, study participants find the company’s stock to be more attractive, have higher perceptions of management’s competence, and have more trust in management when the bad news comes from the company’s Twitter feed as opposed to the CEO’s account. ‘Each medium has its own set of social protocols,’ observes Snow. ‘Studies show you have to conform to those norms to have an effective message.’ |
Reconsidering video More and more IR departments are adopting video as a disclosure tool. But when it comes to earnings forecasts, recent research suggests video offers limited upside – and marked downside potential. ‘Investors are definitely influenced by non-verbal cues – facial expressions, gestures, eye gaze – in management video communications,’ says study co- author Nicole Cade, assistant professor of business administration at the University of Pittsburgh. ‘CEOs who display behavior linked to uncertainty will cause investors to make less favorable judgments about the firm compared with when the same message is provided in written text.’ Unexpectedly, though, the experimenters find the converse situation does not hold: investors react no differently to video and text disclosures when the video features a confident chief executive. ‘If you choose to do a video, it’s better to have a CEO [adept at displaying non-verbal certainty],’ concludes Cade. ‘But it may be wise to take a step back and look at the broader disclosure question.’ |
This article appeared in the fall 2017 issue of IR Magazine