Investor Response to Military Language in Strategy Disclosures

Abstract

Corporate executives frequently communicate their strategies in terms of battles, offensives, and victories. Nonetheless, it is unclear whether the use of military language affects stakeholder reactions. Building on insights from cognitive linguistics and prospect theory, we explore how this particular form of metaphorical communication affects investors’ reactions to strategic announcements. Specifically, we theorize that executives’ use of military language generates negative reactions from investors because it highlights the risks inherent to the strategy being announced. However, consistent with prospect theory, when firms are making losses, the kind of risky strategy conveyed by military language may be viewed as more appropriate. In short, whereas reactions to military language are generally negative, investors react positively to military language used by weak-performing firms. We find consistent evidence for these hypotheses in an archival study and an experiment. The former uses data from 1,371 corporate acquisition announcements; the latter is an experiment involving a targeted sample of 209 participants with prior experience in finance or business administration. Our findings advance a cognitive-linguistic perspective on investor response to strategy disclosures and complement extant work on strategic communication and resource acquisition.