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Female CFOs verbally outperform male finance chiefs in the Q&A portion of earnings calls

February 16, 2022, 11:34 AM UTC

Good morning,

‘Tis the season for earnings calls. But the words a CFO chooses during the Q&A session could make or break a company—and female CFOs outperform male finance chiefs.

I had a conversation with Kate Suslava, assistant professor of accounting at Bucknell University, and co-author of the study, Benefits of Having a Female CFO. Suslava says the research is focused on qualitative evidence—demonstrating gender differences in the way executives use their words during the question and answer session. 

Female CFOs typically give shorter, less upbeat, and clearer presentations, than male CFOs. They also tend to use less clichés and more numbers. This combination of behavior correlates positively with future firm performance, expansion, and stock returns, according to the study. Shareholders react more strongly to the tone (verbal demeanor) of female CFOs than to that of their male counterparts, Suslava and co-authors Julia Klevak and Joshua Livnat wrote.

Natural language processing (NLP) technology was used to analyze 105,514 S&P call transcripts for 4,988 companies from 2009 to 2019. This accounts for about 80% of the companies in the Russell 3000 index. So, the sample includes more mid-sized and small companies, and has a larger proportion of female executives—about 11%, as compared to 8.7% in the Execucomp database, according to the report.

They analyzed stock returns and examined the association between a CFO’s tone and the firm’s expansion. This was measured by inventory growth, capital expenditures, and acquisitions in the 12 months following the call.

“What we see in NLP is that investors should listen carefully, not only to the numbers that are quoted on the scrolls, but also to the words that executives use to describe results,” Suslava says. 

For example, “the choice of words is correlated with market reaction at the time of the call,” she explains. “When a woman talks, the market seems to be reacting more positively to the tone of a woman CFO.” 

To test the hypothesis, the researchers “identified male CFOs who behave similarly to women CFOs during the Q&A session,” she explained. “These are men who kind of talk less than other men. They’re not as upbeat, are more straightforward, and they use more numbers. When I looked at market reaction, I saw that it is also rewarding this kind of behavior for men as well.” 

Since the Q&A session is more spontaneous, the researchers can examine a CFO’s verbal behavior “as close as we can to their natural habitat,” Suslava says. “The way they would talk when we cannot observe them.” The verbal behavior of CFOs was measured across five characteristics: length of presentation, tone/sentiment, complexity, the use of euphemisms and clichés, and the proportion of numbers mentioned. 

There has been research over the years pointing to women outperforming men in leadership roles. Suslava says this study provides “evidence that seems to suggest that women bring something to the table that men don’t have.” 

“I view this as kind of an argument for gender diversity,” she says. “We don’t have enough women in positions of power in all finance professions.”

Let me know what you think.

See you tomorrow.

Sheryl Estrada

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