For earnings announcements, the message should fit the medium

When announcing corporate earnings, it matters that the message fits the medium.

New research by Frank Hodge, Stephanie Grant and Roshan Sinha of the University of Washington Foster School of Business demonstrates that investors react differently to positive earnings news when the same message is delivered via different media.

Specifically, investors respond positively when a CEO brags about a firm’s financial performance in the traditional medium of a conference call. But those same boasts backfire when delivered via online social media.

“Our study informs managers that the most effective communication style for conference calls is not necessarily the most effective communication style on Twitter,” says Hodge, the Michael G. Foster Endowed Professor of Accounting and chair of the Department of Accounting.

He adds that investors respond most negatively when a CEO “humblebrags,” no matter what the medium or how good the news.

New media, new questions

In 2013, the Securities and Exchange Commission (SEC) began allowing public companies to use social media platforms like Twitter to disclose material information in compliance with Regulation Fair Disclosure.

Firms have taken quickly to social media as a new channel to disseminate news of their financial performance. More than half of Fortune 500 CEOs are now communicating via some form of social media.

But are they doing so effectively?

“Firms aren’t quite sure how to use social media,” says Grant, an assistant professor of accounting at Foster. “So they generally use new media as a complement to old media. They take the way they talk about performance on a conference call and say the same things on Twitter.”

Seeing this practice, Grant, Hodge and doctoral student Sinha wondered whether investors would react differently to the same message delivered in a different medium.

Investor expectations

To find out, the Foster researchers designed a study casting students as proxies for retail—that is, non-professional—investors. Each was asked to read a standard press release reporting a company’s positive quarterly earnings. Afterward, some were given a transcript of quotes from a CEO conference call commenting on the news. Others read the same CEO comments as posts on Twitter—“tweets.”

Those quotes were delivered in one of three different communication styles: bragging, modest or humblebragging.

After reading the CEO’s comments, the participants were asked about the CEO’s credibility and their willingness to invest.

The findings were clear. Participants were more likely to invest after reading the CEO’s bragging comments on a conference call than on Twitter. Conversely, they were more prone to invest after reading the CEO’s modest comments on Twitter than on a conference call.

And if unabashed bragging works better on conference calls and modesty works better on social media, its unholy hybrid—the humblebrag—appears to be universally loathed. Regardless of the disclosure medium, investors were least willing to invest in a firm whose CEO uses false humility or self-serving commentary to surreptitiously promote his firm’s feats.

Okay to brag… sometimes

Why do the same words provoke such opposite reactions when they are delivered via different media? The reason, Grant explains, is that each medium is associated with its own style of discourse.

“The mere mention of a medium evokes expectations of how people should appropriately communicate,” she says. “For instance, bragging is seen as acceptable on a conference call. We expect a CEO to take credit and play up his firm’s accomplishments in emotional and even exaggerative language: Our earnings have skyrocketed. Revenue growth was phenomenal.”

But the same boastful language on Twitter or Facebook violates the reader’s expectations. Social media is seen as a forum for social interaction. Conversations rather than pronouncements. In this space, bragging strikes a discordant tone. This can influence perceptions of a CEO’s credibility—and decisions of investors.

So CEOs should feel free to trumpet their companies’ accomplishments on conference calls and in press releases, but maybe tone it down a bit for the tweet.

Grant adds that these insights may be useful to anyone on social media who cares about credibility.

“Corporations or individuals should exercise caution on social media,” she says. “Be careful with the comments you’re choosing to disclose, and match the style of message with the expectations of the medium.”

“How Disclosure Medium Affects Investor Reactions to CEO Bragging, Modesty, and Humblebragging” is forthcoming in the journal Accounting, Organizations and Society.