Last week I wrote about how humour can help people appear more competent and achieve a higher status in the eyes of observers. Truth be told that was just a warm-up so I could write about a cool study by Andrew Call and his collaborators. Conference calls on a business’ earnings are obviously a serious matter since the executives of a listed company are talking to a bunch of analysts that have the power to significantly influence the share price of the company.
Yet, some executives routinely use humour on earnings calls while others don’t. And the executives that use humour have a distinctive advantage. In general, the share price reacts more positively in real-time if information is provided with some humour. This is particularly important when conveying negative information, in which case the use of some humour can dampen the negative impact on investors and the share price. This is probably why many executives are more likely to use humour when conveying negative news rather than positive news. It’s a way of sugar-coating the bad news.
Furthermore, the research finds that managers who use humour in an earnings call get more news coverage and more favourable news coverage. Even the pros aren’t immune to the positive influence of humour. The analysts who cover a stock on average have a more positive opinion of businesses where the executive uses humour in the call and have more favourable earnings estimates out there, thus creating a slightly more optimistic tilt to investors about the business beyond the call itself.
Analysts on the other hand can use humour to their advantage. If an analyst uses humour on a call to ask a question, the answers of management tend to be longer and more informative and, very important, the analyst is more likely to get to ask a follow up question. In other words, analysts can use humour to get better access to management and more insightful information. The only drawback is that it seems that this effect of the use of humour does not last beyond the earnings call itself. Analysts who effectively used humour in the past do not get preferential access and information in the next call. With every interaction, they have to re-establish their access with a new joke. So, if you are an analyst, you better train as a comedian to make sure you get better information from corporate executives.