Should CEOs Say "I" or "We": How Pronouns Secretly Affect Investor Decisions

When video conferencing platform Zoom came under scrutiny for security concerns this year, CEO Eric Yuan made a public statement: “I really messed up.” As The Wall Street Journal reported, Yuan admitted his company’s faults while using “I” and “me” — singular first-person pronouns.

The research of Dr. Zhenhua Chen, assistant professor of accounting at the University of San Diego Knauss School of Business, suggests that Yuan made the right choice of words.

In his paper “Multi-Method Evidence on Investors’ Reactions to Managers’ Self-Inclusive Language,” Dr. Chen studies the impact of self-inclusive language on investors’ decisions. Evidently, the difference between “I” and “we” can lead to different reactions from stock investors.

“In psychology, this effect is called ‘nudge,’” Dr. Chen says. “The listeners don't realize they're being nudged. When a CEO changes the pronoun slightly, investors don’t realize this will have an impact on their investment decisions, but they're actually being influenced.”

Dr. Chen’s paper was recently published in Accounting, Organizations, and Society, a peer-reviewed journal included in the Financial Times’ prestigious list of top academic journals. Leading publications such as Forbes, The Wall Street Journal, and Quartz have also covered his findings, illustrating the potential impact of Dr. Chen’s research on the future of CEO behaviors and how managers communicate with investors and the public.

Small Language Choices Affect Big Market Decisions

In his book The Secret Life of Pronouns, social psychologist James W. Pennebaker writes that we can learn a lot about a person’s cognitive status by analyzing their pronouns. This concept inspired Dr. Chen and his colleague Dr. Serena Loftus to study the pronoun usage of managers on earnings conference calls. Specifically, they wanted to see how investors reacted when managers used singular pronouns (“I” and “me”) versus collective ones (“we” and “us”).

“These days, people really expect CEOs and CFOs to speak on earnings conference calls, and some of [these calls] get intensive media coverage.” says Dr. Chen. “Investors are trying to look for clues about how to make their investment decisions — whether they should invest or sell.”

Dr. Chen and Dr. Loftus used a unique, multi-method approach in their research. Dr. Chen, who specializes in using computer tools for textual analysis, analyzed over 90,000 conference calls from a period of almost 20 years. Simultaneously, Dr. Loftus, a trained psychologist, conducted lab experiments wherein two groups of participants played the role of investors. They read a conference call draft with the same earnings numbers and sentences, except one draft contains “I” and another contains “we”.

“The advantage of using these two strategies is that we can establish the causal relationship in the experiment and, at the same time, observe the impact of the pronouns in real data,” Dr. Chen says. “As a result, we can be much more confident when saying investors are reacting to the pronoun difference instead of something else.”

The study found that it was better for CEOs to use first-person singular pronouns when announcing negative news, as it demonstrated leadership and personal responsibility. The use of “I” and “me” generated a more positive investor response, both in the lab and in the real stock market. “We,” on the other hand, signified to investors that managers were deflecting responsibility.

In the end, Dr. Chen was surprised to see pronouns’ significant effect on investors.

“Traditional economic theory assumes that investors always make rational decisions because they really have skin in the game; they’re investing using their own money,” Dr. Chen says. “But we find investors are influenced by CEOs’ pronoun usage when making investment decisions.”

Even more surprisingly, the lab experiments indicated that investors didn’t realize the managers’ pronoun choices were affecting them.

“They are not aware that they’re being influenced,” Dr. Chen says. “They actually explicitly say they prefer CEOs saying ‘we’ over ‘I.’ But when they make investment decisions, they seem to favor investing in those CEOs who said ‘I’ over ‘we.’”

Implications for CEOs and Investors

Dr. Chen’s findings can impact the behaviors and decisions of CEOs and investors.

“When CEOs disclose information to investors, they want the market to react positively instead of negatively,” Dr. Chen says. “So it’s important for them to understand that a very simple language difference can cause a substantial difference in market reaction.”

Meanwhile, investors can use this study to better understand the hidden stimuli behind their actions when money is on the line.

“We are being influenced without knowing we are being influenced,” Dr. Chen says. “If I make a decision unintentionally based on how a CEO says ‘I’ versus ‘we,’ it could be a wrong decision with real monetary consequences. Maybe this will help people to make better and more efficient investment decisions.”

Advance Your Business Career

At the University of San Diego Knauss School of Business, professors such as Dr. Chen bring their experience and research backgrounds to the classroom to guide students along their career paths. Graduate and undergraduate students can choose from a range of programs and develop the skills to become global, innovative leaders in their chosen fields.

Learn more about how the USD Knauss School of Business can help you build your career in business.

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Zhenhua Chen is an assistant professor of accountancy at the University of San Diego School of Business. He studies the determinants and consequences of firms' financial reporting.