Emotional Expressions Predict Risky Decisions by S&P 500 Executives

26 Pages Posted: 3 Jan 2019

See all articles by Anoop Menon

Anoop Menon

University of Pennsylvania - The Wharton School

Gideon Nave

University of Pennsylvania - The Wharton School

Sudeep Bhatia

University of Pennsylvania - Department of Psychology

Date Written: December 18, 2018

Abstract

Laboratory experiments conducted on college students suggest that emotions influence risk-taking during decisions-making. As the capacity to measure emotions in the field has been limited, however, it is unclear whether findings can be generalized to real world situations such as high-stakes managerial decisions. We examine the relationship between emotional expressions of executives of the world’s largest firms and subsequent high-stake risky decisions about whether to conduct mergers and acquisitions (M&A). By performing text-based sentiment analysis on the quarterly earnings conference calls of these firms (N=15,555), we reveal that the negative emotional expressions predicts less risk taking (i.e., fewer M&A deals), above fundamental financial variables. The effect is driven by the expression of sadness and fear, emotions that involve appraisals of uncertainty and lack of control, in line with the predictions of exiting theories of emotion and risk taking. We discuss the implications of our findings for managerial practice.

Keywords: emotions, decision-making, text analysis, sentiment analysis, mergers and acquisitions

Suggested Citation

Menon, Anoop and Nave, Gideon and Bhatia, Sudeep, Emotional Expressions Predict Risky Decisions by S&P 500 Executives (December 18, 2018). Available at SSRN: https://ssrn.com/abstract=3303000 or http://dx.doi.org/10.2139/ssrn.3303000

Anoop Menon

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Gideon Nave (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3730 Walnut St
JMHH Suite 700
Philadelphia, PA 19104-6365
United States

Sudeep Bhatia

University of Pennsylvania - Department of Psychology ( email )

3815 Walnut Street
Philadelphia, PA 19104-6196
United States

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