Wednesday, September 8, 2010

The CEO's A Liar

We've spent some time on this site discussing how investors can tell if management is behaving in a questionable manner. There are some tip-offs based on EPS rounding, as well as some clues based on management candor. But recently, two researchers pored over conference call verbiage and determined that conference call discussions can reveal whether there is a greater likelihood that management is being deceitful.

Investors are encouraged to listen to conference calls, as they contain a dearth of information that is not available in written releases. But according to Stanford researchers Larcker and Zakolyukina, they reveal much more than originally thought. They contend that deceptive CEOs:

"have more references to general knowledge, fewer non-extreme positive emotions, and fewer references to shareholders value and value creation. In addition, deceptive CEOs use significantly fewer self-references, more third person plural and impersonal pronouns, more extreme positive emotions, fewer extreme negative emotions, and fewer certainty and hesitation words."

Investors interested in looking out for some of these tendencies of deceptive managements can download the entire paper here.


Mike.Gayner said...

Fascinating stuff.

Paul said...

Here is a bit of information about the same topic.