Abstract
ABSTRACTWe examine how managers' ethnic cultural background affects their communication with investors. Using earnings conference calls with executives from 42 countries, we find that managers from ethnic groups that have a more individualistic culture use a more optimistic tone and exhibit greater self-reference. Managers' ethnic culture has a lasting effect and persists for executives whose work experience later exposes them to different ethnic cultures. The effect of ethnic heritage is observed in dialogues that reflect real-time interactions (i.e., Q&A ) and is less pronounced in the scripted, less spontaneous portion of the calls (i.e., management discussion). Analysts respond positively to optimistic tone, but only those who share the manager's ethnic background adjust their earnings forecasts for the cultural component of managerial tone. The findings suggest that managers' ethnic background has a significant effect on how they communicate with the capital market and how the market responds to the disclosure.
Highlights
A growing literature demonstrates that culture has an impact on a wide range of economic activities (Guiso et al 2006; Alesina and Giuliano 2015)
In contrast to prior studies that show that work experience shapes the preference of managers (e.g., Dittmar and Duchin, 2015), we show that the role of inherited cultural background is long lasting and persists even when individuals are later exposed to different cultures
Consistent with the full sample, we find that crosscultural managers who work for U.S firms exhibit a positive and significant association between their inherited cultural background in terms of individualism, and their disclosure tone and self-reference
Summary
A growing literature demonstrates that culture has an impact on a wide range of economic activities (Guiso et al 2006; Alesina and Giuliano 2015). While prior research generally measures conference call attributes such as tone at the firm level, we show that individual manager’s cultural backgrounds impact their communication. In contrast to prior studies that show that work experience shapes the preference of managers (e.g., Dittmar and Duchin, 2015), we show that the role of inherited cultural background is long lasting and persists even when individuals are later exposed to different cultures. We test this conjecture by examining the strength of the effect of ethnic heritage for a subsample of managers that are later exposed to other cultures through work experience For such executives, it is possible that they are ‘made’ to speak in a way that is more consistent with a different ethnic group. We predict that individual managers’ cultural attributes are reflected more in the Q&A section than, where other firm-level efforts are more likely to shape the disclosure tone of managers. H3: The effect of ethnic background on disclosure attributes will be stronger when the communication is more extemporaneous (i.e., Q&As) than less extemporaneous (i.e., management discussions)
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