The researchers reviewed conference call transcripts from 2002 to 2013 for 2,356 U.S. companies. They evaluated the language CEOs and CFOs used during those calls to determine if a CEO or CFO was optimistic or pessimistic. Words like “achieve” and “satisfy” were seen as positive, while words like “penalize” and “avoidable” were seen as negative. They combined CEO and CFO optimism-pessimism scores and compared them to 4,529 deals conducted by their firms.
Four quick takeaways:
- CEOs generally used more positive language than CFOs.
- The more optimistic CEO-CFO pairs took on the highest number of transactions; however, the return on assets was typically lower with more transactions.
- When CEO optimism was low and CFO pessimism was high, ROA was higher.
- The authors suggest a balance of CEO optimism with CFO pessimism makes the ideal partnership to pursue M&A.
“This points to an optimal pairing of an optimistic CEO who has a large risk appetite for M&As, and a pessimistic CFO who is sufficiently conservative and prudent to alert him or her to potential pitfalls,” the study authors wrote in Harvard Business Review.
Read the full study here.
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