Based on research by Patricia Naranjo, Francois Brochet, Gregory S. Miller and Gwen Yu

• Culture affects the way managers communicate in conference calls.
• Managers from more individualistic countries use language that is both more optimistic and more self-referential.
• In earnings calls Q&As, when an analyst comes from a similar, collectivist culture as a manager, the analyst can better interpret the speaker’s tone of voice and adjust forecasts accordingly. These “intra-cultural analysts” play a crucial role in getting stock prices to accurately reflect executives’ tone.

It’s Alibaba’s latest earnings call, and CEO Daniel Zhang is fielding questions during a Q&A. An analyst from the U.S. thinks Zhang sounds cautious, and leaves his forecast as is. But another analyst, who grew up in Shanghai as Zhang did, notes a certain cheerful nuance in his tone. After the call, she revises her earnings forecast for Alibaba upward. The market jumps.

It’s an anecdote reported from earnings calls time and again: When an analyst and manager both come from the same, collectivist culture, the analyst somehow seems able to discern unspoken meaning in the manager’s tone. This ability to detect underlying optimism or pessimism prompts these analysts to adjust their forecasts ⁠— and the market responds.

In a recent study, Rice Business professor Patricia Naranjo proved that this unspoken communication is real. When both analyst and manager in an earnings call come from collectivist cultures ⁠— that is, cultures that prize the group over the individual ⁠— the effect on the market is measurable.

Working with colleagues Francois Brochet of Boston University and Gregory S. Miller and Gwen Yu from the University of Michigan, Naranjo found that after an earnings conference call, markets responded more dramatically to revisions from analysts who had the same, collectivist ethnicity as the C-suite executives who spoke. The results suggest these “intra-cultural analysts” play a key role in getting stock prices to reflect managers’ true outlook.

To measure this phenomenon, Naranjo and her team first amassed a sample of English-language earnings conference call transcripts from 2002 to 2012. The calls occurred within the three days around an earnings announcement. The final sample consisted of 57,740 conference calls held by 5,021 unique firms from across the globe.

The 24,901 executives from 42 countries who took part in the calls were mostly CEOs and CFOs, but there were also COOs, CMOs and IROs, among others. Of the managers, six percent were female and ten percent had a post graduate education. The average age of the executives was 52.77.

The researchers began with the premise that ethnicity helps shape an outlook that is either more or less individualistic. The researchers then assigned managers and sell-side analysts to likely ethnic groups, based on first and last names and an ethnicity-name matching technique. Assigned groups included Anglo-Saxon, Chinese, European, Hispanic, Indian, Japanese, Korean, Russian/Slavic and Vietnamese.

Next, the researchers measured each ethnicity’s individualism outlook, using an index based on analysis of 88,000 IBM employees in 72 countries. Unsurprisingly, Anglo-Saxons rated the highest on the individualism scale, followed by Europeans. Koreans and Chinese were the least individualistic, and were categorized as more group-oriented.

Now it was time to test the hypothesis. Did managers from more individualistic cultures have a more optimistic tone during conference calls? The prediction was based on psychology research showing that independent cultures – typically Western ⁠— place more emphasis on influencing individuals through shows of self-confidence and optimism. Because Q&As tend to be more spontaneous than scripted calls, Naranjo and her colleagues zeroed in on the Q&As to conduct their analysis. Their hypothesis proved correct: The managers from individualistic cultures did indeed speak with a more positive tone during the calls. They also used more first-person pronouns as they spoke.

The finding held true even for executives from individualistic cultures who had studied or worked in group-oriented cultures. Though these executives weren’t quite as positive-sounding as counterparts who hadn’t spent time in group-oriented cultures, the researchers concluded that the cultural traits the executives inherited from their native ethnic group were long-lasting.

Overall, the researchers also found, CEOs tended to speak more positively and use more singular first-person pronouns on average. Female managers used less optimistic language, and older managers tended to adopt a more pessimistic tone, but also used more singular first-person pronouns.

Finally, those analysts who shared a group-oriented cultural background with the managers on a conference call responded more strongly to the managers’ tone ⁠— suggesting that they recognized the effect of culture on a speaker’s tone of voice. Collectivist managers, as a rule, used less optimistic language.

When Naranjo’s team studied individualistic analysts matched with group-oriented managers, the analysts’ response was not as strong. Nor was there any pronounced special response when an analyst from a group-oriented culture was paired with an individualistic manager. When analysts are from different backgrounds as managers, in other words, there’s no evidence that they will strongly revise a forecast in response to tone.

For investors tuning in to company conference calls, the findings speak volumes. For analysts and executives who share the same, collectivist background, important messages can go unspoken ⁠— and still be understood. Not only that, but when these “intra-cultural analysts” read between the lines and act on their intuitive cultural knowledge, the markets listen. Investors should take note as well.

Patricia Naranjo was an assistant professor of accounting at Jones Graduate School of Business at Rice University.

To learn more, please see: Brochet, F., Miller, G. S., Naranjo, P., & Yu, G. (2019). Managers’ cultural background and disclosure attributes. The Accounting Review, 94(3), 57-86

The winner of the 2019 Rice University Business Plan Competition (RBPC) will ring Nasdaq’s opening bell on the day before Independence Day.

Vita Inclinata Technologies from the Mitchell Hamline School of Law in St. Paul, Minnesota, will perform the ceremonial opening of the Nasdaq Stock Market trading day at 9:30 a.m. CDT on Wednesday, July 3.

Vita, based in Denver and Seattle, is pioneering new, innovative hardware solutions for daily safety challenges in aerospace, construction and other dangerous industries. Vita’s first product, the Load Stability System, was created to solve the deadly swinging of helicopter hoisting and sling-load systems.

Vita CEO Caleb Carr will be joined by Brad Burke, managing director of the Rice Alliance for Technology and Entrepreneurship, which hosts the annual business plan competition, and Will Roper, the U.S. Air Force’s assistant secretary for acquisition.

A live webcast of the Nasdaq opening bell will be available at https://new.livestream.com/nasdaq/live. To receive a photo of the Vita team and Rice representatives at Nasdaq, email jfalk@rice.edu.

What: Ringing of Nasdaq opening bell.

When: Wednesday, July 3, 9:30 a.m. CDT. The ceremony begins at 9:25 a.m.

Where: Nasdaq MarketSite, 4 Times Square, 43rd and Broadway, Broadcast Studio, New York City.

Vita won nearly $700,000 of the record $2.9 million in cash and prizes awarded at the world’s richest and largest student startup competition April 4-6.

“We are honored to win the Rice Business Plan Competition,” Carr said. “It has opened doors to new resources and relationships that have accelerated our progress, and ringing the Nasdaq bell is an example of that. It is an extreme honor for me and my team and another opportunity that the Rice Business Plan Competition has provided us.”

Held at Rice’s Jones Graduate School of Business and described by Forbes magazine as “the Super Bowl and World Series of business plan competitions,” the 2019 RBPC brought 42 university teams from across the globe to pitch their new technology businesses to more than 300 venture capital and investor judges. Judges evaluated the businesses based on the investment potential.

More than 140 corporate and private sponsors support the business plan competition.

Since the RBPC’s inception in 2001, when nine teams competed for $10,000, more than 229 competitors have gone on to successfully launch their ventures and are still in business today or have sold. Past competitors have raised nearly $2.3 billion in funding and created more than 3,000 new jobs.

For more information, contact Jeff Falk, associate director of national media relations at Rice, at 713-348-6775 or jfalk@rice.edu.

Follow the Rice Business Plan Competition via Twitter @RBPC.

Follow Rice’s Jones Graduate School of Business via Twitter @Rice_Biz.

Follow Rice News and Media Relations via Twitter @RiceUNews.

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The Rice Alliance for Technology and Entrepreneurship is Rice University’s nationally recognized initiative devoted to the support of technology commercialization, entrepreneurship education and the launch of technology companies. Since inception of the Rice Alliance, more than 2,300 early stage companies have participated at the 185 programs hosted by the alliance and raised nearly $7.2 billion in funding.