IDEAS home Printed from https://ideas.repec.org/a/eee/aosoci/v79y2019ics0361368219300662.html
   My bibliography  Save this article

Multi-method evidence on investors’ reactions to managers’ self-inclusive language

Author

Listed:
  • Chen, Zhenhua
  • Loftus, Serena

Abstract

We investigate the joint effect of managers’ self-inclusive language (SIL) and performance news on investors’ reactions to accounting disclosures. We identify two types of SIL: individual SIL, which includes first-person singular pronouns (e.g., I, me) and collective SIL, which includes first-person plural pronouns (e.g., we, us). When performance news is negative, individual SIL implies that a manager is claiming sole responsibility for the unfavorable event whereas collective SIL and SEL diffuse responsibility. Therefore, we predict higher perceptions of manager credibility for individual SIL relative to collective SIL or self-exclusive language (SEL) when performance news is negative, which, in turn, increase investment judgments. We use a between-subjects experiment to test our predictions. Results show higher perceptions of manager credibility and higher investment judgments for individual SIL relative to collective SIL or SEL when performance news is negative. Results of a maximum likelihood estimation suggest that perceptions of manager credibility mediate the effect of individual SIL on investment judgments, supporting the notion that individual SIL exerts an indirect effect on investment judgments. We supplement experimental evidence with an analysis of managers’ SIL in a large sample of earnings conference calls. We document a positive (negative) market reaction to individual (collective) SIL when performance news is negative, consistent with our Hypothesis. We also find a positive market reaction to individual SIL when news is positive. Overall, our study offers multi-method evidence of the impact of a subtle and easily overlooked component of managers’ language on investors’ judgments.

Suggested Citation

  • Chen, Zhenhua & Loftus, Serena, 2019. "Multi-method evidence on investors’ reactions to managers’ self-inclusive language," Accounting, Organizations and Society, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:aosoci:v:79:y:2019:i:c:s0361368219300662
    DOI: 10.1016/j.aos.2019.101071
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0361368219300662
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.aos.2019.101071?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. David F. Larcker & Anastasia A. Zakolyukina, 2012. "Detecting Deceptive Discussions in Conference Calls," Journal of Accounting Research, Wiley Blackwell, vol. 50(2), pages 495-540, May.
    2. Bonsall, Samuel B. & Leone, Andrew J. & Miller, Brian P. & Rennekamp, Kristina, 2017. "A plain English measure of financial reporting readability," Journal of Accounting and Economics, Elsevier, vol. 63(2), pages 329-357.
    3. Tim Loughran & Bill Mcdonald, 2014. "Measuring Readability in Financial Disclosures," Journal of Finance, American Finance Association, vol. 69(4), pages 1643-1671, August.
    4. Kristina Rennekamp, 2012. "Processing Fluency and Investors’ Reactions to Disclosure Readability," Journal of Accounting Research, Wiley Blackwell, vol. 50(5), pages 1319-1354, December.
    5. Hun‐Tong Tan & Elaine Ying Wang & Bo Zhou, 2014. "When the Use of Positive Language Backfires: The Joint Effect of Tone, Readability, and Investor Sophistication on Earnings Judgments," Journal of Accounting Research, Wiley Blackwell, vol. 52(1), pages 273-302, March.
    6. Hermalin, Benjamin E & Weisbach, Michael S, 1998. "Endogenously Chosen Boards of Directors and Their Monitoring of the CEO," American Economic Review, American Economic Association, vol. 88(1), pages 96-118, March.
    7. Angela K. Davis & Jeremy M. Piger & Lisa M. Sedor, 2012. "Beyond the Numbers: Measuring the Information Content of Earnings Press Release Language," Contemporary Accounting Research, John Wiley & Sons, vol. 29(3), pages 845-868, September.
    8. Weisbach, Michael S., 1988. "Outside directors and CEO turnover," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 431-460, January.
    9. Li, Feng, 2008. "Annual report readability, current earnings, and earnings persistence," Journal of Accounting and Economics, Elsevier, vol. 45(2-3), pages 221-247, August.
    10. Bradley P. Owens & Michael D. Johnson & Terence R. Mitchell, 2013. "Expressed Humility in Organizations: Implications for Performance, Teams, and Leadership," Organization Science, INFORMS, vol. 24(5), pages 1517-1538, October.
    11. Peter Demerjian & Baruch Lev & Sarah McVay, 2012. "Quantifying Managerial Ability: A New Measure and Validity Tests," Management Science, INFORMS, vol. 58(7), pages 1229-1248, July.
    12. Tim Loughran & Bill McDonald, 2014. "Regulation and financial disclosure: The impact of plain English," Journal of Regulatory Economics, Springer, vol. 45(1), pages 94-113, February.
    13. Baginski, Stephen P & Hassell, John M & Hillison, William A, 2000. "Voluntary Causal Disclosures: Tendencies and Capital Market Reaction," Review of Quantitative Finance and Accounting, Springer, vol. 15(4), pages 371-389, December.
    14. W. Brooke Elliott & Stephanie M. Grant & Kristina M. Rennekamp, 2017. "How Disclosure Features of Corporate Social Responsibility Reports Interact with Investor Numeracy to Influence Investor Judgments," Contemporary Accounting Research, John Wiley & Sons, vol. 34(3), pages 1596-1621, September.
    15. Cianci, Anna M. & Kaplan, Steven E., 2010. "The effect of CEO reputation and explanations for poor performance on investors' judgments about the company's future performance and management," Accounting, Organizations and Society, Elsevier, vol. 35(4), pages 478-495, May.
    16. Hirst, De & Koonce, L & Simko, Pj, 1995. "Investor Reactions To Financial Analysts Research Reports," Journal of Accounting Research, Wiley Blackwell, vol. 33(2), pages 335-351.
    17. Jun Han & Hun‐Tong Tan, 2010. "Investors' Reactions to Management Earnings Guidance: The Joint Effect of Investment Position, News Valence, and Guidance Form," Journal of Accounting Research, Wiley Blackwell, vol. 48(1), pages 123-146, March.
    18. Lisa Koonce & Marlys Gascho Lipe, 2010. "Earnings Trend and Performance Relative to Benchmarks: How Consistency Influences Their Joint Use," Journal of Accounting Research, Wiley Blackwell, vol. 48(4), pages 859-884, September.
    19. Jeffrey Hales & Xi (Jason) Kuang & Shankar Venkataraman, 2011. "Who Believes the Hype? An Experimental Examination of How Language Affects Investor Judgments," Journal of Accounting Research, Wiley Blackwell, vol. 49(1), pages 223-255, March.
    20. Jun Han & Hun‐Tong Tan, 2010. "Investors' Reactions to Management Earnings Guidance: The Joint Effect of Investment Position, News Valence, and Guidance Form," Journal of Accounting Research, Wiley Blackwell, vol. 48(1), pages 81-104, March.
    21. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2008. "Trusting the Stock Market," Journal of Finance, American Finance Association, vol. 63(6), pages 2557-2600, December.
    22. Blau, Benjamin M. & DeLisle, Jared R. & Price, S. McKay, 2015. "Do sophisticated investors interpret earnings conference call tone differently than investors at large? Evidence from short sales," Journal of Corporate Finance, Elsevier, vol. 31(C), pages 203-219.
    23. Angela K. Davis & Isho Tama†Sweet, 2012. "Managers’ Use of Language Across Alternative Disclosure Outlets: Earnings Press Releases versus MD&A," Contemporary Accounting Research, John Wiley & Sons, vol. 29(3), pages 804-837, September.
    24. William J. Mayew & Mohan Venkatachalam, 2012. "The Power of Voice: Managerial Affective States and Future Firm Performance," Journal of Finance, American Finance Association, vol. 67(1), pages 1-44, February.
    25. Frost, Carol A., 1997. "Disclosure policy choices of UK firms receiving modified audit reports," Journal of Accounting and Economics, Elsevier, vol. 23(2), pages 163-187, July.
    26. Stephen P. Baginski & John M. Hassell & Michael D. Kimbrough, 2004. "Why Do Managers Explain Their Earnings Forecasts?," Journal of Accounting Research, Wiley Blackwell, vol. 42(1), pages 1-29, March.
    27. Bartov, Eli & Givoly, Dan & Hayn, Carla, 2002. "The rewards to meeting or beating earnings expectations," Journal of Accounting and Economics, Elsevier, vol. 33(2), pages 173-204, June.
    28. Jennings, R, 1987. "Unsystematic Security Price Movements, Management Earnings Forecasts, And Revisions In Consensus Analyst Earnings Forecasts," Journal of Accounting Research, Wiley Blackwell, vol. 25(1), pages 90-110.
    29. Siegel, Phyllis A. & Brockner, Joel, 2005. "Individual and organizational consequences of CEO claimed handicapping: What's good for the CEO may not be so good for the firm," Organizational Behavior and Human Decision Processes, Elsevier, vol. 96(1), pages 1-22, January.
    30. Barton, Jan & Mercer, Molly, 2005. "To blame or not to blame: Analysts' reactions to external explanations for poor financial performance," Journal of Accounting and Economics, Elsevier, vol. 39(3), pages 509-533, September.
    31. Amy P. Hutton & Gregory S. Miller & Douglas J. Skinner, 2003. "The Role of Supplementary Statements with Management Earnings Forecasts," Journal of Accounting Research, Wiley Blackwell, vol. 41(5), pages 867-890, December.
    32. Mitchell A. Petersen, 2009. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," The Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 435-480, January.
    33. Steven N. Kaplan & Mark M. Klebanov & Morten Sorensen, 2012. "Which CEO Characteristics and Abilities Matter?," Journal of Finance, American Finance Association, vol. 67(3), pages 973-1007, June.
    34. Hirst, DE & Koonce, L & Miller, J, 1999. "The joint effect of management's prior forecast accuracy and the form of its financial forecasts on investor judgment," Journal of Accounting Research, Wiley Blackwell, vol. 37, pages 101-124.
    35. Asay, H. Scott & Libby, Robert & Rennekamp, Kristina M., 2018. "Do features that associate managers with a message magnify investors’ reactions to narrative disclosures?," Accounting, Organizations and Society, Elsevier, vol. 68, pages 1-14.
    36. Cho, Charles H. & Roberts, Robin W. & Patten, Dennis M., 2010. "The language of US corporate environmental disclosure," Accounting, Organizations and Society, Elsevier, vol. 35(4), pages 431-443, May.
    37. Tim Loughran & Bill Mcdonald, 2016. "Textual Analysis in Accounting and Finance: A Survey," Journal of Accounting Research, Wiley Blackwell, vol. 54(4), pages 1187-1230, September.
    38. Robert Bloomfield & Mark W. Nelson & Eugene Soltes, 2016. "Gathering Data for Archival, Field, Survey, and Experimental Accounting Research," Journal of Accounting Research, Wiley Blackwell, vol. 54(2), pages 341-395, May.
    39. Kim, Peter H. & Dirks, Kurt T. & Cooper, Cecily D. & Ferrin, Donald L., 2006. "When more blame is better than less: The implications of internal vs. external attributions for the repair of trust after a competence- vs. integrity-based trust violation," Organizational Behavior and Human Decision Processes, Elsevier, vol. 99(1), pages 49-65, January.
    40. Tim Loughran & Bill Mcdonald, 2011. "When Is a Liability Not a Liability? Textual Analysis, Dictionaries, and 10‐Ks," Journal of Finance, American Finance Association, vol. 66(1), pages 35-65, February.
    41. Hodge, Frank & Hopkins, Patrick E. & Pratt, Jamie, 2006. "Management reporting incentives and classification credibility: The effects of reporting discretion and reputation," Accounting, Organizations and Society, Elsevier, vol. 31(7), pages 623-634, October.
    42. D. Daniel Sokol & Preeti Choudhary & Jason D. Schloetzer & Jason D. Sturgess, 2013. "Boards, Auditors, Attorneys and Compliance with Mandatory SEC Disclosure Rules," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 34(7-8), pages 471-487, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Do, Chuong, 2024. "Financial analysts' information discovery: A study of manager-analyst interactions in conference calls," Advances in accounting, Elsevier, vol. 64(C).
    2. Gregory D. Saxton & Dean Neu, 2022. "Twitter-Based Social Accountability Processes: The Roles for Financial Inscriptions-Based and Values-Based Messaging," Journal of Business Ethics, Springer, vol. 181(4), pages 1041-1064, December.
    3. Ravenscroft, Sue & Williams, Paul F., 2021. "Sustaining discreditable accounting research through ignorance: The mainstream elite’s response to the 2008 financial crisis," Accounting, Organizations and Society, Elsevier, vol. 95(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Asay, H. Scott & Libby, Robert & Rennekamp, Kristina M., 2018. "Do features that associate managers with a message magnify investors’ reactions to narrative disclosures?," Accounting, Organizations and Society, Elsevier, vol. 68, pages 1-14.
    2. Martin, Rachel, 2019. "Examination and implications of experimental research on investor perceptions," Journal of Accounting Literature, Elsevier, vol. 43(C), pages 145-169.
    3. Grant, Stephanie M. & Hodge, Frank D. & Sinha, Roshan K., 2018. "How disclosure medium affects investor reactions to CEO bragging, modesty, and humblebragging," Accounting, Organizations and Society, Elsevier, vol. 68, pages 118-134.
    4. Berkin, Anil & Aerts, Walter & Van Caneghem, Tom, 2023. "Feasibility analysis of machine learning for performance-related attributional statements," International Journal of Accounting Information Systems, Elsevier, vol. 48(C).
    5. Chen, Wei & Han, Jun & Tan, Hun-Tong, 2016. "Investor reactions to management earnings guidance attributions: The effects of news valence, attribution locus, and outcome controllability," Accounting, Organizations and Society, Elsevier, vol. 55(C), pages 83-95.
    6. Skarlicki, Daniel & Lo, Kin & Rogo, Rafael & Avolio, Bruce J. & DeHaas, CodieAnn, 2023. "The role of CEO accounts and perceived integrity in analysts’ forecasts," Organizational Behavior and Human Decision Processes, Elsevier, vol. 176(C).
    7. Han, Jun, 2013. "A literature synthesis of experimental studies on management earnings guidance," Journal of Accounting Literature, Elsevier, vol. 31(1), pages 49-70.
    8. Blankespoor, Elizabeth & deHaan, Ed & Marinovic, Iván, 2020. "Disclosure processing costs, investors’ information choice, and equity market outcomes: A review," Journal of Accounting and Economics, Elsevier, vol. 70(2).
    9. Allee, Kristian D. & Do, Chuong & Sterin, Mikhail, 2021. "Product market competition, disclosure framing, and casting in earnings conference calls," Journal of Accounting and Economics, Elsevier, vol. 72(1).
    10. Jaeschke, Reemda & Lopatta, Kerstin & Yi, Cheong, 2018. "Managers’ use of language in corrupt firms’ financial disclosures: Evidence from FCPA violators," Scandinavian Journal of Management, Elsevier, vol. 34(2), pages 170-192.
    11. Michał Dzieliński & Alexander F. Wagner & Richard J. Zeckhauser, 2017. "Straight Talkers and Vague Talkers: The Effects of Managerial Style in Earnings Conference Calls," NBER Working Papers 23425, National Bureau of Economic Research, Inc.
    12. Bakarich, Kathleen M. & Hossain, Mahmud & Hossain, Mahmud & Weintrop, Joseph, 2019. "Different time, different tone: Company life cycle," Journal of Contemporary Accounting and Economics, Elsevier, vol. 15(1), pages 69-86.
    13. Tim Loughran & Bill Mcdonald, 2016. "Textual Analysis in Accounting and Finance: A Survey," Journal of Accounting Research, Wiley Blackwell, vol. 54(4), pages 1187-1230, September.
    14. Umar, Tarik, 2022. "Complexity aversion when SeekingAlpha," Journal of Accounting and Economics, Elsevier, vol. 73(2).
    15. Xi Fu & Xiaoxi Wu & Zhifang Zhang, 2021. "The Information Role of Earnings Conference Call Tone: Evidence from Stock Price Crash Risk," Journal of Business Ethics, Springer, vol. 173(3), pages 643-660, October.
    16. Lisa M. Gaynor & Andrea S. Kelton, 2014. "The effects of analyst forecasts and earnings trends on perceptions of management forecast credibility," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 54(1), pages 189-210, March.
    17. Florian Eugster & Alexander F. Wagner, 2021. "Earning investor trust: The role of past earnings management," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(1-2), pages 269-307, January.
    18. Ingrid E. Fisher & Margaret R. Garnsey & Mark E. Hughes, 2016. "Natural Language Processing in Accounting, Auditing and Finance: A Synthesis of the Literature with a Roadmap for Future Research," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 23(3), pages 157-214, July.
    19. Wanli Li & Tiantian Yan & Yue Li & Ziqiao Yan, 2023. "Earnings management and CSR report tone: Evidence from China," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(4), pages 1883-1902, July.
    20. Soliman, Marwa & Ben-Amar, Walid, 2022. "Corporate social responsibility orientation and textual features of financial disclosures," International Review of Financial Analysis, Elsevier, vol. 84(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:aosoci:v:79:y:2019:i:c:s0361368219300662. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/aos .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.