Does the Stock Market Appreciate Management Speak?

Abstract

CEOs and other actors often use business jargon – “management speak” – when communicating their firm’s strategy. We examine the use of management speak in the context of acquisition announcements. Rather than providing legitimacy and impress others, we argue that the use of such terminology is likely to make an audience, including analysts and fund managers, suspicious of the value-creation potential of the deal. Consequently, the financial market will respond negatively to it. An event-study on 1,371 large acquisitions confirms our prediction. Importantly, analyzing the longer term impact of the acquisitions in our sample, our findings confirm that the financial market’s dislike of management speak is not necessarily because its use is more ubiquitous among deals with lower ex ante potential for value creation; investors just trust them less. We also show that the results are different for new CEOs, whose use of it is met with more leniency, although this changes significantly in the immediate aftermath of the 2008 crisis. Our results are robust for a battery of control variables and alternative specifications. We discuss implications for insights into the communication of firm strategy.