Examination of CEO-CFO Social Interaction through Language Style Matching: Outcomes for the CFO and the Organization Journal: Academy of Management Journal Manuscript ID AMJ-2016-1062.R3 Manuscript Type: Revision Keywords: CEO/TMT decision making < Upper Echelons/Corporate Governance < Business Policy and Strategy < Topic Areas, Executive compensation < Upper Echelons/Corporate Governance < Business Policy and Strategy < Topic Areas, Upper echelons/corporate governance (General) < Upper Echelons/Corporate Governance < Business Policy and Strategy < Topic Areas Abstract: This study proposes that CEO-CFO language style matching (LSM)—a form of unconscious verbal mimicry based on function words—can provide insights into social interaction processes between CEOs and CFOs. We argue and empirically verify that high CEO-CFO LSM reflects CFOs’ strong attempts to ingratiate CEOs. Because ingratiation of superiors can lead to the superiors’ positive evaluations of subordinates, CFOs who exhibit higher LSM with CEOs will receive higher compensation and are more likely to become board members of the associated firms. In addition, the proposed relationships will be stronger when CEOs are more powerful. Yet, in the presence of high CEO-CFO LSM, CFOs are less likely to voice different viewpoints and challenge CEOs in strategic decision processes. As a result, firms tend to undertake more mergers and acquisitions (M&As), and such M&As will be paid with a low percentage of cash (vs. stock) and realize lower announcement returns. Using a sample of over 2,000 U.S. firms in 2002-2013, we find empirical support for these predictions. Academy of Management Journal
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Examination of CEO-CFO Social Interaction through Language Style Matching: Outcomes for the CFO and the
Organization
Journal: Academy of Management Journal
Manuscript ID AMJ-2016-1062.R3
Manuscript Type: Revision
Keywords:
CEO/TMT decision making < Upper Echelons/Corporate Governance < Business Policy and Strategy < Topic Areas, Executive compensation < Upper Echelons/Corporate Governance < Business Policy and Strategy < Topic Areas, Upper echelons/corporate governance (General) < Upper Echelons/Corporate Governance < Business Policy and Strategy < Topic Areas
Abstract:
This study proposes that CEO-CFO language style matching (LSM)—a form of unconscious verbal mimicry based on function words—can provide
insights into social interaction processes between CEOs and CFOs. We argue and empirically verify that high CEO-CFO LSM reflects CFOs’ strong attempts to ingratiate CEOs. Because ingratiation of superiors can lead to the superiors’ positive evaluations of subordinates, CFOs who exhibit higher LSM with CEOs will receive higher compensation and are more likely to become board members of the associated firms. In addition, the proposed relationships will be stronger when CEOs are more powerful. Yet, in the presence of high CEO-CFO LSM, CFOs are less likely to voice different viewpoints and challenge CEOs in strategic decision processes. As a result, firms tend to undertake more mergers and acquisitions (M&As), and such M&As will be paid with a low percentage of cash (vs. stock) and realize lower announcement returns. Using a sample of over 2,000 U.S.
firms in 2002-2013, we find empirical support for these predictions.
Academy of Management Journal
Examination of CEO-CFO Social Interaction through Language
Style Matching: Outcomes for the CFO and the Organization
Acknowledgements: This study is based on the third essay of the first author’s dissertation. We are grateful to AMJ action editor Sucheta Nadkarni’s guidance and three anonymous reviewers’ valuable suggestions. We also would like to thank seminar participants at Georgia State University, Tulane University, and University of Miami for their helpful feedback. The first author would like to thank his dissertation committee members for their feedback on earlier versions of the paper.
EXAMINATION OF CEO-CFO SOCIAL INTERACTION THROUGH LANGUAGE
STYLE MATCHING: OUTCOMES FOR THE CFO AND THE ORGANIZATION
ABSTRACT
This study proposes that CEO-CFO language style matching (LSM)—a form of unconscious verbal mimicry based on function words—can provide insights into social interaction processes between CEOs and CFOs. We argue and empirically verify that high CEO-CFO LSM reflects CFOs’ strong attempts to ingratiate CEOs. Because ingratiation of superiors can lead to the superiors’ positive evaluations of subordinates, CFOs who exhibit higher LSM with CEOs will receive higher compensation and are more likely to become board members of the associated firms. In addition, the proposed relationships will be stronger when CEOs are more powerful. Yet, in the presence of high CEO-CFO LSM, CFOs are less likely to voice different viewpoints and challenge CEOs in strategic decision processes. As a result, firms tend to undertake more mergers and acquisitions (M&As), and such M&As will be paid with a low percentage of cash (vs. stock) and realize lower announcement returns. Using a sample of over 2,000 U.S. firms in 2002-2013, we find empirical support for these predictions.
Upper echelons research suggests that social interactions among top managers are critical
to strategic decision quality (Finkelstein, Hambrick, & Cannella, 2009). Given that top
management team (TMT) social interaction processes typically are not directly observable to
external constituents, most scholars have relied on TMT demographic characteristics to infer the
nature and quality of TMT social interactions. For instance, scholars have argued that TMT
demographic heterogeneity can give rise to cognitive conflict (Bantel & Jackson, 1989;
Wiersema & Bantel, 1992) but to low group cohesiveness (Michel & Hambrick, 1992). Despite
the popularity of demographic heterogeneity in TMT research, scholars have questioned the
underlying meaning of such data and call for studying TMT social interactions using more
We rely on CEO-CFO language style matching (LSM) in conference calls with investors
and security analysts1 to capture CEO-CFO verbal mimicry. LSM reflects the degree to which
two people match each other’s use of function words (Ireland & Pennebaker, 2010; Ireland et al.,
2011; Richardson, Dale, & Kirkham, 2007). Function words (e.g., pronouns, propositions, and
articles) differ from content words in that function words reflect how people speak whereas
content words (e.g., nouns, regular verbs, and adjectives) capture what people say. People’s use
of content words tends to be conscious and context-specific (Pennebaker & King, 1999) whereas
their use of function words is often unconscious and independent from contexts (Pennebaker,
2011). Due to this important feature of function word use, CEO-CFO LSM in one setting (i.e.,
conference calls) can provide an insight into their social interactions in other settings, which are
not directly observable.2
Building on prior behavioral mimicry research (Chartrand & Lakin, 2013; Chartrand &
van Baaren, 2009), we argue that CEO-CFO LSM in conference calls, a form of behavioral
mimicry, reflects the CFO’s ingratiation of the CEO and can predict the CFO’s personal and the
firm’s organizational outcomes. CEOs play an important role in evaluating the CFOs’
performance and deciding the latter’s compensation (Gore, Matsunaga, & Yeung, 2011) and
influencing board member nomination (Westphal & Khanna, 2003). Meanwhile, the ingratiation
of superiors by subordinates can help the latter achieve career advancement (Judge & Bretz,
1994). High CEO-CFO LSM signals that the CFO has a strong attempt to affiliate with and
ingratiate the CEO. Thus, CFOs who exhibit high LSM with CEOs will receive higher
compensation and are more likely to become board members of the associated firms. This is
1 For the sake of brevity, “CEO-CFO LSM in conference calls with investors and security analysts” is referred to as “CEO-CFO LSM” throughout the paper unless noted otherwise. 2 In our empirical models testing the effects of CEO-CFO LSM in function words, we control for their language matching in content words to rule out alternative explanations.
ingratiation of board members and institutional investors. Findings from this study imply that
high CEO-board chair LSM might lead to less effective board monitoring. With a high level of
CEO-board chair LSM present, the CEO may intend to ingratiate the board chair, mitigating the
latter’s monitoring role. Extending this study to not only other senior executives, but also to
CEO-board relations, seems a natural extension of this research.
In summary, this study takes a novel approach to examine social interactions of the CEO-
CFO dyad by focusing on their LSM in conference calls. Our results suggest that a high level of
CEO-CFO LSM, reflecting the CFO’s ingratiation of the CEO, can benefit the CFO personally
by increasing his/her compensation and likelihood of becoming a board member of the focal firm,
it harms the firm by allowing the firm to make a larger number/value of M&As that result in
lower returns. More broadly, we believe that our study can make important contributions to
upper echelons theory by moving away from the widely adopted demographic approach and by
focusing on subteams among key executives. We hope that our study encourages more research
to explore this important issue.
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Wei Shi ([email protected]) is Associate Professor at University of Miami. He obtained his Ph.D. in strategic management from Rice University. His current research focuses on the intersection of corporate governance and corporate strategy and corporate governance in the international context. Yan “Anthea” Zhang ([email protected]) holds the Fayez Sarofim Vanguard Chair of Strategic Management at the Jones Graduate School of Business, Rice University. Her areas of specialization include CEO succession and corporate governance, as well as foreign direct investment and technology entrepreneurship in emerging markets. She has served as an associate editor of the Academy of Management Journal (2010-2013) and is an associate editor of Strategic Management Journal (2017-2020). Robert E. Hoskisson ([email protected]) holds the George R. Brown Emeritus Chair of Strategic Management at Rice University’s Jones School of Business. His research topics include: corporate and international strategy; corporate governance; strategic entrepreneurship; acquisitions and divestitures; business groups; and IPOs. He is a Fellow of the Academy of Management and Strategic Management Society.