CEO voices predict company performance, research finds
Corporate conference calls rank one step higher than root canals on many investors' to-do lists. But smart stockholders may be able to glean important information by dialing in and paying attention not so much to what is said -- but how the CEO says it.
New research from two Duke University business professors shows the CEO's voice inflection, tone and attitude could predict future stock performance.
"There's information in how people say things," said associate professor William Mayew, who conducted the research with professor Mohan Venkatachalam. "Emotions leak. They're very hard to control."
Mayew and Venkatachalam analyzed the tapes of conference calls for nearly 700 U.S. corporations from a wide range of industries. They examined 1,647 conference calls from 691 companies placed between Jan. 1 and Dec. 31, 2007. Computer software analyzed the CEO's voices for emotions, not words.
CEOs who spoke with enthusiasm and were positive saw their companies' stock prices rise.
Those who were negative -- even if their companies met earnings expectations -- saw stock prices drop.
"CEOs of top companies go through training to know how to present, keep a level head," Mayew said. But some part "is either uncontrollable or some emotions ... are genuine."
The results were most telling for companies that missed their earnings expectations, Mayew said. On those calls, analysts tended to ask more pointed questions, and the CEO faced more pressured to explain results. However, it generally took longer for the stock price to react than it did when the CEO shared positive news.
"Analysts are reluctant to downgrade a firm when they hear something negative," Mayew said. "They want to make sure things are bad before they issue a downgrade. Prices drift downward after the conference call if the feelings were negative."
Still, people should be cautious of using only voice analysis to gauge what a CEO might be thinking, said Joe Comeau, a speech pathologist who works with corporate executives at his Capital Speech Consultants business in Clayton, N.C.
"You would only know if a CEO was excited if you knew that CEO or had listened to previous conference calls," he said. Without familiarity, "just using voice alone ... it will be very difficult to judge."
Investors should use common sense when trying to ascertain whether a CEO is trying to downplay information.
Mayew and Venkatachalam continue to explore the connection between CEO emotions on conference calls and financial results. Mayew said their current research project examines the relationship between CEOs who express negative emotions and the likelihood that the company will eventually restate its earnings for that quarter. So far, he said, the results show a correlation.
If that's the case, investors might want to consider dialing in for conference calls more often, especially as technology improves.
"It might be easier to control in a conference call setting where there's only audio because there's no camera on you," Mayew said. "But that's coming."
(Contact Sue Stock at sue.stock(at)newsobserver.com.)
(Distributed by Scripps Howard News Service, www.scrippsnews.com.)
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