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    Managers' Cultural Background and Disclosure Attributes
    08 Nov 2016Working Paper Summaries

    Managers' Cultural Background and Disclosure Attributes

    by Francois Brochet, Gregory S. Miller, Patricia Naranjo, and Gwen Yu
    How does the cultural background of executives affect the way in which they communicate with investors? This paper examines the impact of cultural backgrounds of individual managers based on their ethnic heritage on their disclosure narrative during earnings conference calls. Among the findings, managers from individualistic cultures are likely to use a more positive tone, use greater self-reference, and make fewer apologies in the Q&A portion of the conference calls. The capital market reacts to disclosure style in a predictable way: optimistic tone is associated with a positive stock return following the call. However, market participants do not adjust their interpretation of disclosure tone for firm value based on the cultural background of the management team.
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    Author Abstract

    We examine how a manager’s ethnic cultural background affects managers’ communication with investors. Using a sample of earnings conference calls transcripts with 26,430 executives from 42 countries, we find that managers from ethnic groups that have a more individualistic culture (i) use a more optimistic tone, (ii) exhibit greater self-reference, and (iii) make fewer apologies in their disclosure narratives. Managers’ ethnic culture has a lasting effect on their narratives—the effects persist even for executives who are later exposed to different ethnic cultures through work experience. The effect of ethnic heritage is observed in dialogues that reflect real time interactions (i.e., Q&As) and less pronounced in the scripted, less spontaneous portion of the calls (i.e., management discussion). The capital market responds positively to optimistic tone yet does not distinguish between the optimism in tone of managers from different ethnic backgrounds. The findings suggest that managers’ ethnic backgrounds have a significant effect on how they communicate with the capital markets and how the markets respond to the disclosure event.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: October 2016
    • HBS Working Paper Number: HBS Working Paper #17-027
    • Faculty Unit(s): Accounting and Management
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