Communication,Economics & Finance
• 7 minute read

The Narratives of Managers in Capital Market

How cultural backgrounds affect the way managers communicate with investors

By Huang Hong, PhD Candidate, School of Accountancy, CUHK Business School

We were born into different ethnic groups and cultures. Culture potentially impacts how we behave and speak, even though not all of us would notice its effects in our daily lives. One cultural characteristic associated with ethnic groups – individualism versus collectivism, has been shown to correlate with individuals’ preferences for achievement and recognition, in contrast to harmony and cooperation with others.

Francois Brochet, Associate Professor of Accounting at Questrom School of Business in Boston University and three other scholars have conducted a research titled “Managers’ Cultural Background and Disclosure Attributes” on how such ethnic cultural characteristic influences the ways managers communicate in the capital market. In a December seminar held by the School of Accountancy at CUHK business school, Prof. Brochet examined a sample of earnings conference calls from 42 countries and found that managers from ethnic groups with a more individualistic culture used a more optimistic tone, exhibited greater self-reference, and made fewer apologies in their disclosure narratives.

Individualism versus Collectivism

At the seminar, Prof. Brochet introduced findings in culture psychology literature. “In individualistic cultures, individuals tend to view themselves as an autonomous, independent person, while in collectivist cultures, individuals view themselves not as separate from the social context but as more connected and less differentiated from others,” he explained.

As shown in the literature, people from an individualistic culture communicate and interact with others in a different way from those from a collectivist culture. The former have more self-attribution biases and they tend to “enhance or protect their self-esteem by taking credit for success and denying responsibility for failure”. However, self-referencing is less prevalent in a collectivist culture since emphasizing one’s superiority over his peers is viewed negatively in the particular culture. Moreover, studies also find people in individualistic culture, such as the United States, tend to believe that their abilities are above average.

Managers in corporations around the world were born in different ethnic cultures and backgrounds. If our ethnic culture impact how we behave and speak, it will also have a potential influence on how managers around the world communicate with their investors.

To identify each manager’s ethnic group, Prof. Brochet and his colleagues used the ethnicity-name matching technique. “The technique classifies each name into nine distinct ethnic groups: Anglo-Saxon, Chinese, European, Hispanic, Indian, Japanese, Korean, Russian/Slavic and Vietnamese. After identifying the ethnic background of each executive, we assign an individualism score, which varies by each ethnic group based on data from Hofstede. We use that measure to examine the impact of culture on the conference call disclosure attributes.”

“The ethnic group with the highest individualism measure is Anglo-Saxon, followed by European. Groups with a lower individualism measure are the South Korean and the Chinese,” he said.

Analysis on Earnings Conference Calls

To capture different behavioral patterns when managers disclose information to investors, the researchers utilized a specific setting: earnings conference calls. Earnings conference call is a burgeoning way for corporations to communicate with the capital market. Prof. Brochet explained that there were generally two sections during an earnings conference call: the management discussion section and the Q&A section.

“We consider the Q&A section, which is highly interactive, to be more extemporaneous and the management discussion section to be more scripted and less extemporaneous. We predict that individual managers’ cultural attributes are reflected more in the Q&A section than in the management discussion section.”

The team collected earnings conference calls transcripts with 26,430 executives from 42 countries and examined mainly the managers’ narratives in the Q&A section of these earnings conference calls.

To capture the characteristics of managers’ narratives, manager’s words in each conference call were analyzed via a content analysis technique in three variables: tone, self-reference and apology.

Tone is the difference between the number of positive terms and negative terms and it measures the level of optimism. Self-referenceis the number of times a manager uses singular first-person pronouns (such as “I”, “me”, “my”, “mine”, “myself”) while apology is the number of times a manager says “sorry” or “apologize”. Prof. Brochet expected to find an association between these characteristics of managers’ narratives and their cultural backgrounds.

“Our findings should prove useful to academic and practitioner audiences who wish to better understand cross-cultural patterns in corporate disclosures and their implications for the capital market.” – Prof. Francois Brochet

Findings on Manager’s Narratives

Managers from a more individualistic culture are found to use a more optimistic tone, exhibit greater self-reference, and make fewer apologies in their narratives, even after controlling for other determinants of country-, firm-, and manager-level characteristics.

Since some managers will also be exposed to different cultural environments if they work in a corporation located in a country outside their home country, Prof. Brochet and his colleagues further investigated whether the effects of individualism on manager’s disclosure would be long lasting, even for those managers who may acquire another culture in their careers. And the result showed that effects of inherited individualism became smaller for these cross-culture managers.

Moreover, the team looked into whether a culturally diverse management team of a firm would exhibit a greater within-firm variation in narratives. And the result shows that rather than being trained to speak in a more consistent way with their fellow managers in the same firm, managers remained unaffected by others’ narratives.

Findings on Investors’ Reaction

Understanding whether and how the listeners, the investors, respond to different narratives of managers from different culture backgrounds is important because information conveyed in these earnings conference calls ultimately affects investors’ decision making.

Under the efficient market hypothesis that security prices fully reflect all available information, investors’ response to manager’s narratives during the earnings conference calls can be measured by the extent of abnormal stock price changes around the earnings conference calls. Therefore, Prof. Brochet and his colleagues examine stock returns during conference calls.

“If investors give more credence to the positive tone of managers from more collectivist ethnic groups, we would observe a stronger response to the tone of firms with more managers from a collectivist ethnic group,” he said. “However, our study results indicate that investors do not consider cultural differences in tone when reacting to the earnings conference calls,” he said.


Prior studies on corporate disclosure focus more on the impacts of economic incentives of managers or firms but seldom mention the impacts of the culture background of managers. Even though in daily life, we notice how people from different cultures communicate differently with others, scholars in accounting may have doubt on whether cultures affect corporate disclosure because corporate disclosure events, such as earnings conference calls, press releases and presenting financial statements in annual report are carefully designed by consulting public relation professionals. Thus in such formal events, managers are considered to be trained to speak in a professional way in order to maximize the welfare of the firm so that personal traits of managers may not show any effects. But this paper contracts our belief and shows that cultural backgrounds indeed impact how managers’ communicate with investors.

“Our findings should prove useful to academic and practitioner audiences who wish to better understand cross-cultural patterns in corporate disclosures and their implications for the capital market.” Prof. Brochet concluded.

References: Brochet, F., Miller, G., Naranjo, P., Yu, G., 2016. Managers’ Cultural Background and Disclosure Attributes.

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