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The Hidden Message in What Executives Say

Discover the role of vocal cues in investor decision-making

In today’s dynamic financial landscape, investors are constantly looking for a competitive edge to gauge a company’s performance and predict future stock returns. Traditional metrics, like revenue growth, are now insufficient in the face of rapid market fluctuations. Instead, investors are turning to alternative data sources to glean valuable insights.  

One such method is to measure the vocal cues of CEOs and other executives on corporate earnings calls. (Yes, investors are doing that.)  

In this video, Blake Steenhoven, assistant professor of accounting at Smith School of Business, explores the fascinating realm of vocal cues analysis as a predictor of managerial efficacy and investor response. He unpacks how subtle nuances in pitch, intonation, volume and speech rate can be analyzed and, ultimately, how they affect investment decisions and influence market outcomes.  

Steenhoven also examines the balance between managing emotional expression and maintaining authenticity in professional communications, explaining that it’s a complex interplay between emotional control and perceived competence and trustworthiness.  


Blake Steenhoven:  

00:12: What are vocal cues?

Investors are constantly looking for some kind of competitive advantage. It’s a competitive industry, and you really just can’t get ahead of your competitors by using the same traditional metrics that everyone has access to. Things like revenue growth, there’s just no way to make a buck on that anymore because people are trading on that in the blink of an eye.  

What investors are increasingly turning to are alternative data sources, different things that aren’t traditionally used in valuing a company but may have some relevance in an investment decision. And one of these cues would be the vocal cues, the acoustic characteristics of the manager’s speech. The vocal cues that I typically look at in my research are going to be things like pitch, intonation, loudness, kind of variability in loudness and speech rate. And the reason I look at those is largely because they’re ones that we can measure reliably.  

01:00: What’s the connection between a manager’s voice during earnings calls and firm performance?

There is research showing that managers’ vocal cues are predictive of future performance, and they’re also predictive of future stock returns, which suggests that investors actually are attentive to these signals and they’re incorporating them into their investment judgments. There have been companies that are trying different things. A lot of them indicate that they are using vocal coaching, so either in-house, part of an investor relations officer’s [IRO] attempt to prepare the executive for the upcoming earnings call and rehearse, and all those good things. But on top of that, some have indicated that they bring in outside consultants to come in and do training with their executives on vocal delivery in particular.  

Some of the more creative solutions that I’ve seen are pre-recording some of these presentations, like the presentation section of an earnings call, and then being able to listen back to it, try to analyze the vocal cues that are used, and even, in some case, manipulate these cues.  

One of the IROs I talked to mentioned that, “OK, we’ve got this executive who’s kind of dry and he’s kind of speaking really slowly, and we just don’t think this is going to work at all.” And so they prerecorded their earnings call presentation — and his section, they listened to it, and sure enough, he’s just talking so, so slowly.  

What they did is they went in and digitally sped [the recording] up so you’re listening to it kind of like you might a podcast on 1-1/4 speed. Flash forward to the earnings call where they start playing it, and it’s this pre-recorded presentation, and they realize, “Oops, we made this way too fast.” He is starting to sound like Alvin and the Chipmunks, and it is a total disaster. But they’re in the middle of the call, so they can’t really change it. They can’t really fix it.  

02:48: What are the pros and cons of managers limiting their emotions when they communicate?

So, in general, the company’s goal, especially in communications with investors, is really to manage the narrative. In one of my papers, we conducted a survey of investor relations officers, and nearly half of them told us that they have actively tried to limit the emotion in their manager’s voice. As a follow-up to that study, that survey, we ran an experiment where we had MBA students acting as managers communicating with investors, and we had them communicate once just normally and then again trying to control the emotion in their voice.  

And what we found in that study is that, first, it’s effective. It can actually work. The managers who are trying to limit their emotional expression, they were rated as less emotional. The problem is that they were also rated as sounding less natural. And as a result, they sounded less competent and less trustworthy. And so, essentially, we’re accomplishing one goal, but it’s at the expense of some other things that are pretty important for your effective communication. 

03:53: How are companies responding to investor analysis of a CEO’s vocal cues?

Talking to investor relations officers, they think about these things constantly. They’re aware of the different algorithmic approaches that are being used to measure these cues and trade on them. They’re aware that there are hedge funds that are bringing in ex-CIA people to try to detect deception in your earnings call. These are things that they care about, and they’re things that we don’t have a lot of information on at the moment.  

When companies ask me: What should we do about this? They’ve got algorithms running in the background that are analyzing every little, tiny change in my voice. I mean, should we be trying to adapt? Should we be trying to adjust or get people that the algorithms seem to like the way they speak, or something like that?  

Your best solution is really to not try to satisfy these algorithms, in general, because, one, you don’t really know what they’re looking for necessarily. You’re essentially putting yourself in this cat-and-mouse game where you have no information and you’re not going to be able to outperform these algorithms. You’re not going to be able to game them. And even if you did by some stroke of luck figure out, “Oh, this is what the algorithm seems to like, what they seem to react to,” by that time, it’s going to have changed. And all of a sudden, it’s something new that you have to worry about.  

05:14: What are the key takeaways?

The takeaway is certainly not that your emotions don’t matter and that it’s not worth being thoughtful about the way you’re coming across, because it is. This is a normal part of human communication, really just making sure that, “OK, am I actually focusing on the wrong thing here? And maybe my efforts could be better devoted to just being a little bit more concise, a little bit more clear, maybe more persuasive and genuine.” Really, trying to be something you’re not is a recipe for disaster.