Do Features that Associate Managers with a Message Magnify Investors' Reactions to Narrative Disclosures?

46 Pages Posted: 21 Nov 2013 Last revised: 8 Feb 2018

See all articles by H. Scott Asay

H. Scott Asay

University of Iowa - Department of Accounting

Robert Libby

Cornell University - Samuel Curtis Johnson Graduate School of Management

Kristina M. Rennekamp

SC Johnson Graduate School of Management; Cornell SC Johnson College of Business

Date Written: February 6, 2018

Abstract

We test whether investors react more strongly to narrative disclosures when the CEO’s presence or association with the message is more salient in the disclosure, holding all other information constant. In our first experiment, we manipulate whether a CEO uses more personal pronouns (e.g., “I” and “our” rather than “the company” and “its”) in an assertion about whether the firm is “likely” or “unlikely” to win a lawsuit. We find investors’ beliefs about the outcome of the lawsuit align more closely with the CEO’s assertion when the disclosure contains more personal pronouns. Experiments 2 and 3 manipulate the extent of the CEO’s association with the message and whether the disclosure contains good or bad news. In the second experiment, we manipulate whether a disclosure uses more personal pronouns. In the third experiment, we manipulate whether a disclosure does or does not contain a photo of the CEO. Both manipulations of association with the message lead to stronger reactions from investors in between-subjects tests. That is, when news is good (bad), including either more personal pronouns or the CEO’s photo leads to more positive (negative) assessments of firm value. We also find that, within-subjects, both manipulations are perceived as indicating greater association with the message, but participants do not expect an effect on investment evaluations. In a fourth experiment, we provide additional evidence that personal pronoun usage affects investor reactions by increasing the perceived credibility of the disclosure.

Keywords: language, voluntary disclosure, investor judgment, plain English, personal pronouns, CEO photos

JEL Classification: C91, G18, M41, M42

Suggested Citation

Asay, Hamilton Scott and Libby, Robert and Rennekamp, Kristina M., Do Features that Associate Managers with a Message Magnify Investors' Reactions to Narrative Disclosures? (February 6, 2018). Available at SSRN: https://ssrn.com/abstract=2357539 or http://dx.doi.org/10.2139/ssrn.2357539

Hamilton Scott Asay

University of Iowa - Department of Accounting ( email )

S232 Pappajohn Business Building
Iowa City, IA 52242-1000
United States

Robert Libby (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States
607-255-3348 (Phone)
607-254-4590 (Fax)

Kristina M. Rennekamp

SC Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States
607-255-0500 (Phone)

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

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