A recent study presents a crucial insight for CEOs and corporate leaders aiming to establish trust with their investors: the language used to outline the company’s future strategies and the medium through which these are communicated can significantly influence investor decisions. Published in the journal Behavioral Research in Accounting, the study was co-authored by Scott C. Jackson, a professor of accounting at UNLV Lee Business School, and colleagues from the University of Massachusetts Amherst.

The research explored how different communication methods affect investor decisions by observing the reactions of 250 past and prospective MBA student investors to the same message from a CEO. The variations included written messages, videos, and audio recordings. The findings revealed that when CEOs and managers employ specific language styles—such as the present tense or active voice—to discuss future events, these events are perceived by investors as more tangible and probable. However, this effect is primarily observed in written communications.

For messages conveyed through video or audio, the impact is lessened as viewers and listeners focus more on the speaker’s vocal and facial expressions rather than the content of the words spoken. According to Jackson, “Written communication carries greater significance in this context. When individuals read about plans described using immediate language, it makes the future seem nearer and more plausible. Conversely, with video or audio, aspects such as tone or body language become more prominent, weakening the message’s effectiveness.”

This study is particularly relevant when regulatory bodies such as the U.S. Securities and Exchange Commission (SEC) and the Federal Trade Commission are intensifying their efforts to enhance transparency in financial and corporate communications. This includes initiatives to eliminate hidden fees and provide more transparent disclosures of risks. The findings also coincide with the SEC’s increasing focus on the language and tone used in public disclosures. As companies progressively use platforms like YouTube, LinkedIn, and earnings calls to share their visions, these messages’ manner and auditory quality are becoming increasingly critical.

Jackson notes, “We tend to believe that video adds a layer of professionalism and credibility. However, in terms of setting expectations for the future, written communication may in fact be more influential.” The implications of this study extend beyond Wall Street and are significant across various sectors and cities.

Take Las Vegas, a city known for its grand announcements regarding new casinos, sports arenas, and tech hubs. Each significant development is backed by a presentation to investors, city planners, and other key stakeholders. This research suggests that the mode and venue of communication could influence perceptions of feasibility or risk associated with these plans. Jackson also draws on historical examples to highlight the broader implications of media on human perception. He references the 1960 Kennedy-Nixon presidential debates, where television viewers preferred the poised, confident appearance of JFK. In contrast, radio listeners, who focused solely on the content of the discourse, felt Nixon was more convincing. This underscores the significant influence of the communication medium, suggesting that written communications hold more sway than previously considered.

More information: Scott C. Jackson et al, Does Temporal Immediacy Impact Investors’ Judgments? It Depends on Communication Mode, Behavioral Research in Accounting. DOI: 10.2308/BRIA-2023-017

Journal information: Behavioral Research in Accounting Provided by University of Nevada, Las Vegas