Linguistic Cues of CEOs’ Future Focus in Earnings Conference Calls: The Impact on Corporate Policies

Abstract

Building on the Upper Echelons Theory we investigate the impact of CEO future sightedness on corporate policies and firm performance. We capture CEOs future orientation through an unobtrusive, validated tool of linguistic analysis of textual characteristics expressed by CEOs during 2008-2012 earnings conference calls for the top 1.000 NYSE companies. We then provide three levels of results. Firstly, we show that - all other factors equal - the presence of a future-oriented CEOs impacts on Corporate Financial Policies, both in terms of book leverage and cash holdings. Secondly, we analyse the differences in capital structure as result of CEOs’ active financing decision. In line with the Pecking Order Theory (and conditional to the presence of net financing deficit) highly future focused CEOs negatively affect the attraction of external resources via debt and equity issuance and prefer internal sources of financing in terms of retained earnings. Finally, we integrate our sample with acquisition announcements and estimate a series of linear probability models to assess whether CEO future focus has a material impact on firm acquisitiveness. Future focused CEOs in our sample are, indeed, less likely to attempt an acquisition in a given year, more likely to pay for the acquisition with acquirer stocks, and less likely to conclude a cross-sector acquisition.