VIER Emotion Analytics predicts stock market reactions
Every three months, listed US companies present their latest management reports to the relevant analysts in conference calls. They first explain their current figures and then answer questions. RWTH Aachen University has now investigated the extent to which the communication of the CEO(s) or CFO(s) has an effect on the analysts' assessment of the company and thus on their recommendations to buy. Can linguistic ability influence the evaluation of the management report and thus the evaluation of the company? Simply put: Can analysts be convinced by effective linguistic presentation if the figures are not so good? And conversely, can even good figures lose their persuasive power through unfavourable linguistic effects? What has a stronger effect on the evaluation of a company? Plain figures or how the figures are communicated?
Comprehensive study uses VIER software
Most people would probably guess that the HOW can override the WHAT. To answer this question scientifically, RWTH in Aachen used the AI-based analysis software VIER Emotion Analytics. "This software was applied to the transcripts of spontaneous question-answer conversations of 92,166 telephone conferences from 2005 to 2020," explains Dr Anja Linnenbürger, VIER Head of Research Psychology & AI. "In doing so, we examined the relationship between the individual, specific ways in which the communication had an impact and the reactions of the analysts." The software uses AI to measure the communicative impact of the company representatives in the telephone conferences, the content of which was previously written down automatically.
It is not a question of WHAT, but of HOW - what had to be proven
The result of the study is clear: investors and analysts attribute a higher value to companies when their management communicates charismatically - an effect that results from several factors of the analysis. "The factors of charismatic language do not contain any economically relevant information about the company's situation. The observed effect of charismatic language in the study is even greater than that of qualitative information," Linnenbürger summarises.
Further results from other studies show that the effect of "competetive" (aggressive, impulsive, uncontrolled) has a negative effect on analysts. The same is generally true for the use of complex, formal expressions that do not get to the point. In contrast, analysts - like presumably all other people - react positively to the effect of "cooperative", a friendly, supportive and empathetic communication. "This means that analysts are demonstrably receptive to purely rhetorical means," adds Dr. Andreas Knetsch from RWTH Aachen University, who was responsible for the study.
This fact seems to have long since been recognised by CEOs and CFOs, knows Dr Anja Linnenbürger: " VIER Emotion Analytics was additionally able to determine that the proportion of "entrepreneurial" communication (positive, optimistic, visionary) in telephone calls increased by more than 40 percent from 2002 to 2019!"
Study: It's not what you say, but how!
The study "It's Not What You Say, But How You Say it - Managerial Charisma and Agitation in Earnings Conference Calls" and its results were presented by Dr Knetsch and his colleagues at the "Research in Behavioural Finance Conference" in Amsterdam on 9 September 2022 and received with great interest by the scientific audience.
More information: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4098568
VIER Emotion Analytics
More about VIER Emotion Analytics: https://www.vier.ai/en/products/vier-emotion-analytics/
Dr Anja Linnenbürger, VIER Head of Research Psychology & AI