Multi-Method Evidence on Investors’ Reactions to Managers’ Self-Inclusive Language

61 Pages Posted: 13 Apr 2017 Last revised: 11 Sep 2019

See all articles by Zhenhua Chen

Zhenhua Chen

University of San Diego School of Business

Serena Loftus

Tulane University - A.B. Freeman School of Business

Date Written: August 30, 2019

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.

Keywords: Disclosure; Self-Inclusive Language; Pronouns; Investment Decision

Suggested Citation

Chen, Zhenhua and Loftus, Serena, Multi-Method Evidence on Investors’ Reactions to Managers’ Self-Inclusive Language (August 30, 2019). Accounting, Organizations and Society, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2950702 or http://dx.doi.org/10.2139/ssrn.2950702

Zhenhua Chen (Contact Author)

University of San Diego School of Business ( email )

223 Olin Hall
5998 Alcalá Park
San Diego, CA
United States

Serena Loftus

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

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