Managers’ Cultural Background and Disclosure Attributes

Abstract

We examine how a manager’s ethnic cultural background affects their communication with investors. Using a sample of earnings conference call transcripts with 24,901 executives from 42 countries, we find that managers from ethnic groups that have a more individualistic culture use a more optimistic tone and exhibit greater self-reference in their disclosure narratives. Managers’ ethnic culture has a lasting effect on their narratives, an effect that persists even for executives whose work experience later exposes them to different ethnic cultures. The effect of ethnic heritage is observed in dialogues that reflect real time interactions (i.e., Q&As) and is less pronounced in the scripted, less spontaneous portion of the calls (i.e., management discussion). Analysts respond positively to an optimistic tone, but only those who share the manager’s ethnic background adjust their earnings forecasts for the cultural component of managerial tone. The findings suggest that managers’ ethnic background has a significant effect on how they communicate with the capital market and how the market responds to a disclosure event.

Keywords: Corporate culture, Disclosure tone, Individualism, Conference calls, Ethnic group

JEL Classification: G15; M41