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

51 Pages Posted: 13 Apr 2017 Last revised: 14 Nov 2017

Zhenhua Chen

Tulane University - A.B. Freeman School of Business

Serena Loftus

Tulane University - A.B. Freeman School of Business

Date Written: November 4, 2017

Abstract

We investigate whether a common element of managers’ language, self-inclusive language (SIL), influences 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). We predict that investors react more positively to individual SIL than collective SIL when the disclosure contains bad news. Specifically, we expect that individual SIL increases investors’ perceptions of managers’ credibility and control over firm outcomes, which are viewed favorably when the disclosure contains bad news. To test our hypothesis, we conduct an experiment and analyze market reactions to a large sample of earnings conference calls. The results from both methods support our hypothesis. Overall, our study provides multi-method evidence of the impact of a subtle and easily-overlooked component of managers’ language on investors’ judgments and decisions.

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 (November 4, 2017). Available at SSRN: https://ssrn.com/abstract=2950702 or http://dx.doi.org/10.2139/ssrn.2950702

Zhenhua Chen (Contact Author)

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

7 McAlister Drive
New Orleans, LA 70118
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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