Talking About Uncertainty

(with Alexander F. Wagner and Richard J. Zeckhauser)

CEOs conducting earnings conference calls display distinctive styles in their word choice. Some CEOs emphasize uncertainty by using qualifying words such as “approximately”, “probably”, and “maybe” more frequently than the fundamental uncertainty in their companies’ business activity would suggest. Others use such words less frequently. Analysts and the stock market respond more strongly to earnings news conveyed by low-uncertainty talkers, independent of actual business uncertainty. Past performance does not explain the style of a newly appointed CEO, but when a firm does appoint a low-uncertainty CEO, Tobin’s Q increases and analyst recommendations become more favorable. Overall, investors and analysts appear to value low-uncertainty talk.