His Lips Are Moving: Deception During Conference Calls

Back in July I posted a question on Compiled Audio/Video Files of Conference Calls: Does anyone know of a resource that contains video and audio files for company conference calls, annual meetings, etc.? I was following up on the potential next phase Stanford University researchers could take in their study of lying CEOs, Detecting Deceptive Discussions in Conference Calls by David F. Larcker and Anastasia A. Zakolyukina. Readers came through and I added a short subsection called “Earnings/Conference Call Research” to the Wall Street Research section on the Links Page.

Earnings/Conference Call Research

• BestCalls.com – earnings call transcripts and audio
• FactSet – see CallStreet Reports for transcripts
• Xignite – earnings call transcripts
• Yahoo! Finance – earnings calls audio

Thanks for your responses. Since then, the WSJ picked up on the research with the cleverly titled, How Can You Tell If A CEO Is Lying? (8/11/10), which of course, elicited comments like

• He is employed?
• His lips are moving?
• he is still breathing!

Humor aside, the researchers found that answers of deceptive executives during conference calls:

have more references to general knowledge, fewer non-extreme positive emotions, and fewer references to shareholders value and value creation. In addition, deceptive CEOs use significantly fewer self- references, more third person plural and impersonal pronouns, more extreme positive emotions, fewer extreme negative emotions, and fewer certainty and hesitation words…

We find that our linguistic classification models based on CEO or CFO narratives per- form significantly better than a random classifier by 4% – 6% with the overall accuracy of 50% – 65%…

In terms of future research, it would be useful to refine general categories to business communication. It would also be desirable to adapt natural language processing approaches to capture the context of word usage for identifying deceptive executive behaviors. Finally, it would be interesting to determine whether portfolios formed on the basis of our word-based measure of deception generate future excess returns (alpha) and/or help eliminate extreme losers from a portfolio selection.

Soon after the WSJ article appeared, John Palizza posted Using Computers to Predict if a CEO is Lying at Investor Relations Musings, 8/12/10.

It will be interesting to see if investors pick up on any of this while parsing conference call answers. The Q & A session is already the portion of the call that gets the most scrutiny, and this research will only help to bring more focus to the area.

Then Dominic Jones posted  a very informative How hedge funds analyze your earnings calls on his IR Web Report (8/13/19). Seems the CIA and Goldman Sachs are out ahead:

And that’s exactly what firms like Goldman Sachs and S.A.C. Capital Advisors have done for years, using experts trained in CIA-style deception detection techniques and advanced software developed in Israel that analyzes executives’ voices for signs of stress.

Jones goes on to note that Broker, Trader, Lawyer, Spy: The Secret World of Corporate Espionage, by CNBC reporter Eamon Javers, explains how Business Intelligence Advisors get hired for as much as $800,000 a year by some of the biggest names on Wall Street. BIA claims that since 2001, they have analyzed over 50,000 Q&As, over 4,000 earnings calls across more than 1,500 companies in more than 30 countries using their model, which also takes tone into account, something you can’t get in a transcript.

Jones goes on to cite an earlier study, The Power of Voice: Managerial Affective States and Future Firm Performance by William J. Mayew and Mohan Venkatachalam, which found that negative emotions detected in executive’s voices predict that companies are more likely to miss consensus forecasts during the next three quarters than they did in the previous three.

In a somewhat related post, CEO’s online video mea culpa boosts investment — study (8/16/10), Jones cites another study that found when CEOs take responsibility for financial restatements via online video, investors’ trust in management rises and they recommend larger investments in the firm. (Using Online Video to Announce a Restatement: Influences on Investor Trust and Investment Decisions by professors Brooke Elliott, Frank Hodge, and Lisa Sedor)

I’m hoping all this will be fodder for a couple of young linguistic students I know, one studying in Sweden and the other in Canada. Maybe if they apply themselves during the next decade or so I can visit them in their future mansions… or at least they might be able to pay off those college loans they’re accumulating.