How can firms communicate effectively to shape stakeholder evaluations and improve firm performance? My research program investigates this overarching question by examining how the language used by executives influences investor reactions. I study the interplay between language and markets, focusing on how firms represent themselves in words and how audiences, particularly investors, interpret those representations. As language constructs our understanding of the world, it can be strategically deployed to influence others’ judgment and decision-making. Notably, much of firm-investor communication occurs in words, from annual reports to earnings calls, rendering language a central vehicle through which firms can shape market perceptions. Grounded in strategic management and informed by organizational theory, accounting, finance, marketing, psychology, and linguistics, my work advances a critical and context-sensitive theory of strategic communication that conceptualizes language as both a signal and a strategic tool.
Empirically, I focus on the sentiment executives express in earnings calls, a high-stakes communication setting where executives speak directly to investors. I built a panel dataset of S&P 500 firms (2014–2023), integrating quarterly earnings call transcripts with abnormal returns, analyst forecasts, and firm fundamentals. I analyze textual data primarily using dictionary-based approaches in R and am exploring large language models to enhance the validity and nuance of language measurement.
My work challenges prevailing assumptions in the executive communication literature across strategy, accounting, and finance by showing that:
1. Sentiment can serve as a strategic tool to manage audience reactions in markets;
2. Investors perceive and respond to sentiment in nuanced ways that go beyond valence;
3. The effects of positive and negative sentiment are not symmetric;
4. Investor reactions to sentiment are context-sensitive, particularly to whether performance exceeds or falls short of expectations.
My research develops a critical and context-sensitive theory of strategic communication, identifying how and when particular language choices shape investor reactions. As the market increasingly values market-based measures of firm performance, firm-investor communication becomes ever more important. Firms with a fine-grained understanding of what types of language resonate with investors can better manage investor reactions and, in turn, improve market-based performance.