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

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