In an increasingly global business world, English is the lingua franca that tethers companies and their investors together. Executives without a deep fluency in English could be costing their companies more than they realize. According to a recent paper coauthored by Associate Professor Gwen Yu, subtle language errors made by nonnative speakers of English in investor conference calls can be linked to literal dollars and cents in the marketplace.

When top leaders fumbled with the language as they led impromptu Q&A sessions in conference calls, their companies were more likely to see diminished intraday trading volumes and more modest price movements in stocks compared with calls led by more fluent speakers. “Executives typically speak English quite well when they’ve had time to prepare and rehearse,” says Yu. “But when they don’t have a script to work off of, we could see the effect of language barriers.”

Yu and her coauthors arrived at this conclusion after looking at spontaneous Q&A sessions in more than 11,000 conference call transcripts from firms based outside the United States. Using sophisticated software, the researchers tracked both grammatical errors and the use of “non-plain” English: executive-speak, technical jargon, and multisyllabic words. A single standard deviation increase in non-plain English, for example, led to a 5.66 percent reduction in intraday trading volumes, even after controlling for the content of the call.

Their findings suggest that this linguistic imprecision can lead investors to feel less confident about their own interpretations of the information presented—and to become less likely to react by buying or selling the company’s stock. The effect of murky language was even more pronounced in calls with firms that have mainly native English-speaking investor bases.

For Yu, the lesson is obvious: Crystal clear communication is essential for CEOs and other leaders who are talking with their investors. “So much communication is becoming real-time these days, thanks to social media, Twitter, and other [platforms],” she says. “Firms must have a strong communications strategy, because they aren’t always going to have the luxury or time to prepare, and simply translating your message won’t be enough.”

“The Capital Market Consequences of Language Barriers in the Conference Calls of Non-U.S. Firms,” by Francois Brochet, Patricia Naranjo, and Gwen Yu, HBS Working Paper.


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