Worried About Your Investments? Take a Close Look at the Language in Annual Letters to Stockholders
May 25th, 2009 • Posted in: NewsNew study shows leaders of low-reputation firms use broad, evasive language
BOSTON
A new study purports to show that certain types of evasive language in a CEO’s annual letters to stockholders can be a warning sign to investors, reports the Christian Science Monitor.
Two professors from the University of Nebraska at Lincoln found that the CEOs of companies with high reputations used clearer, more direct language than those heading firms of lower repute.
“The good guys use shorter words, fewer words — and the words they do choose are concrete words,” Janice Lawrence, director of the university’s business ethics program and coauthor of the study, told the Monitor. “The bad guys use more adjectives; their words are longer; and the words aren’t as concrete.”
Using content analysis software, the researchers could sort the letters from high-reputation firms and low-reputation firms correctly 81 percent of the time.
While co-author Lawrence concedes that the average investor can’t detect the symptomatic language with the efficiency of the computer, she tells the Monitor that people often can rely just on gut feeling.
“We’ve all had times when someone gave a talk and you feel they just talked all around the issue and didn’t get right down to it,” Lawrence said.
Source: Christian Science Monitor, May 20.
For more information, see: Related Newsline story, Mar. 9 — Related Newsline story, Feb. 2 — Related Newsline story, Jan. 26 — Related Newsline story, Jan. 19 — Related Newsline story, July 27, 1998.
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