Research profile: The CFO, CIA and conference calls - how they can make or break a company


Assistant Professor Jenny Zhang is taking financial accounting practice research in a new direction.

Jenny Zhang

Since joining the Sauder School of Business in July 2009, Assistant Professor Zhang has been investigating whether a Chief Financial Officer’s (CFO) individual style has an impact on firms’ financial reporting decisions. Her work has led her to some important findings including results that suggest older CFOs tend to be more cautious than younger CFOs in their approach to financial management and CFOs with MBA degrees tend to be more aggressive than CFOs with other qualifications.

Currently, Zhang is focusing on whether individual managers (CEO and CFO) have distinct styles in terms of choice of word use (either positive or negative) when they take part in earnings conferences calls. These calls typically occur right after financial information is released and serve as a forum to disseminate information from public companies to individual investors, investment firms, and analysts. Using this forum, companies are able to explain past fiscal performance and justify future financial predictions.

The question of whether a manager’s individual personality traits affect language is crucial according to Zhang. Her research suggests that a CFO’s wording in an earnings conference call can help predict a company’s financial performance. She cites an example of two companies that are of similar size with comparable earnings and future financial performance expectations. Both engage in earnings conference calls but one CFO describes the outlook of the company with positive language and the other forecasts the future with neutral language. In most instances, the company with the positive CFO outperforms the other according to her research.

Zhang’s qualitative research is unique. In order to explain accounting reporting practices, she focuses on individual CEOs and CFOs rather than the traditional quantitative accounting research that attends to a company’s size, age, and growth rate. While it has long been thought that a manager’s personality can have a dramatic impact on performance, it has been difficult to empirically measure.

The importance of this research is borne out in practice. Some investment agencies hire former CIA agents to observe top executives who are engaged in earnings conference calls. They monitor such things as the managers’ body language, facial expressions, and speaking tone. Their observations assist potential investors to make informed decisions about investing in specific firms. Zhang’s research justifies these methods as she has shown that a manager’s delivery of accounting news, via an earnings conference call, can be associated with a company’s future performance.

Zhang’s research could have a significant impact on investment practices as it appears that demographic and psychographic traits of a CFO affect financial reporting practices. Investors can utilize this knowledge to make informed choices about what companies they might avoid when making investment decisions.

For more information on Dr. Zhang visit Jenny Zhang's profile.