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Happier and more optimistic CEOs bring higher share prices, states a new study from the University of British Columbia’s Sauder School of Business. CEOs and CFOs at companies in a range of sectors were included.
The markets may be horrific, but investors take note: happier and more optimistic CEOs bring higher share prices.
That’s the conclusion of a new study from Professor Jenny Zhang with the Sauder School of Business at the University of British Columbia. Her four-year study shows that if CEOs and other business leaders are able to express their company’s performance reports and updates with optimism, it can create an upswing in share price.
“Consciously or unconsciously, it may be their own style to show optimism or pessimism. They might not even be aware of it,” Zhang said.
She noted that the key is to take away what she calls the “firm effect” — essentially, leaders working for successful firms are more likely to express optimism. However, once she and her colleagues looked at how leaders had performed at multiple companies, they were able to get a more complete picture.
The study looks at managers who had worked for at least two companies for a year or more and compares the language they used while reporting earnings at the different companies over the course of multiple quarters. Zhang said 121 CEOs and CFOs at companies in a range of sectors were included.
“For our study it was just the tone. We counted the frequency of pauses during earnings conference calls,” she said.
She and her colleagues also kept a three-page list with a breakdown of words that can be associated with positive or negative connotations; they were used to help determine if a CEO was staying positive or not.
Certainly information for investors to consider as the year draws to a close and Q4 earnings reports approach.
