Companies perform better if their senior management is seen as being optimistic while disclosing earnings, says a new research.
"A CEO's natural sunny disposition can have an impact on the way the market reacts to announcements of the company's earnings," according to researchers from the University of British Columbia's Sauder School of Business.
The study shows that leaders' inclinations to express themselves with optimism carries over into their tone when disclosing company performance - a tendency that can create an upswing in stock price.
"Looking at how managers naturally convey themselves, we tracked the way CEOs and CFOs communicate earnings across their leadership roles at multiple firms to decipher their overall communication style," said Jenny Zhang, assistant professor who co-authored the paper.
Zhang and her colleagues examined transcripts of earnings reports delivered by managers in conference calls.
They tabulated the frequency of positive and negative words used and contrasted the information with corporate performance and resulting market activity.
The findings revealed that managers whose language displayed an optimistic state of mind are more likely to have a positive influence on their firm's position in the market.
"Investors should be aware that there are human factors at play when they are listening to reports on firm performance," Zhang added.
The study is forthcoming in the journal Review of Accounting Studies.
