Analysts notice when leaders say the future is … um, ah, bright

Corporate leaders carefully craft their earnings call presentations to project confidence about their company’s future. But a new paper by researchers at UNC Kenan-Flagler Business School suggests that an influential part of their communication might be unintentional.

Verbal crutches like ums and ahs are just some of the vocal cues that signal uncertainty. When leaders exhibit these speech patterns, it has a direct impact on how analysts perceive the company, according to the research by Accounting Professors Daniela De la Parra and John Gallemore.

“We find that how leaders talk and sound – not just the words they use – drives how analysts view the company’s health and business prospects,” says De la Parra. “If executives sound more hesitant in answering questions, there’s greater variation in analyst forecasts after the fact. This might be because analysts detect doubt in a leader’s voice and then lose confidence in what they’re saying.”

Their findings hold true even when a leader’s message and language are in fact positive. “If a leader sounds uncertain, analysts pick up on it,” says Gallemore. “In other words, leaders’ voices reveal information they might not even know they’re communicating, and analysts are tuning into those signals.”

Their study sheds light on the gap between what companies seek to communicate and what markets absorb. “The Sound of Uncertainty: Examining Managerial Acoustic Uncertainty in Conference Calls” is part of the S&P Global Market Intelligence Series.

Measuring the sound of uncertainty

Earnings calls are designed to communicate key information, including a company’s recent performance, its plans and management’s outlook.

Prior research shows these calls carry economic weight: Every word and utterance can matter. Equity analysts use what they learn to shape their forecasts and recommendations, which, in turn, guides investors making trading decisions.

“Leaders want to come across as composed and in control – they’re expected to project confidence whether they’re talking about cost pressures or the impact of government policies on day-to-day operations,” says Gallemore. “When analysts sense that executives are wavering, even when it’s subtle, it can signal that leadership is uncertain. That has consequences.”

To understand how analysts pick up on these cues, the researchers set out to measure how leaders sounded during earnings calls and what impact it had on analysts’ behavior. They specifically looked for what are known as acoustic disfluencies, or speech interruptions like filler words such as um and ah. Past linguistics research has identified these stumbles as signals of uncertainty and hesitation.

The study focused on the Q&A portion of earnings calls, where executives field analyst questions on the spot. Using audio from more than 16,000 hours across 1,700 public companies, the researchers applied machine learning to analyze the speech disfluencies. They then compared these speech patterns to each manager’s baseline manner of speaking during the prepared remarks portion of the same call. This allowed researchers to distinguish between speech disruptions caused by uncertainty versus other factors, such as leaders who were nervous public speakers, non-native English speakers or affected by audio quality issues.

De la Parra and Gallemore found that when executives sounded more tentative during calls, analysts were more divided in their forecasts about the company’s prospects. Analysts didn’t necessarily assume the company is hiding bad news, just that the future is less clear.

When analysts become less consolidated in their predictions, it can have real economic impacts on how investors make trading decisions.

High-stakes settings, high-stakes implications

While the study focuses on earnings calls, researchers say the findings could have implications for other forms of corporate communication, especially unscripted, high-stakes settings. This could include anything from job interviews to high-level business presentations.

Take employee all-hands meetings, for instance. “Controlling vocal cues is much harder than choosing the right words in real-time,” says Gallemore. “And if a leader sounds hesitant or uncertain about the company’s strategy, even if their words are optimistic, employees might pick up on it and decide to start working on their resumes.”

Road shows are another example, where executives meet potential investors to generate interest and convince them to buy shares, typically before an IPO or stock offering. “Executives are going to get tough questions and their immediate responses are what’s really informative,” says De la Parra.

“Even if managers aren’t consciously aware they’re doing it, their voices leak information about their true feelings about the company’s situation,” she adds. “It’s not so much what they say, but rather how they say it.”