Cheap talk? Strategy presentations as a form of chief executive officer impression management

• Date: 01 December 2016
• Author: Kwangwon Ahn,Richard Whittington,Basak Yakis‐Douglas
• Published date: 01 December 2016
• DOI: http://doi.org/10.1002/smj.2482

Strategic Management Journal

Strat. Mgmt. J.,37: 2413–2424 (2016)

Published online EarlyView 8 March 2016 in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2482

Received 10 February 2014;Finalrevision received 4 November 2015

CHEAP TALK? STRATEGY PRESENTATIONS AS A

FORM OF CHIEF EXECUTIVE OFFICER IMPRESSION

MANAGEMENT

RICHARD WHITTINGTON,1*BASAK YAKIS-DOUGLAS,1

and KWANGWON AHN2

1Saïd Business School, University of Oxford, Oxford, U.K.

2HSBC Business School, Peking University, Shenzhen, China

Research summary: We develop and test a set of hypotheses on investors’ reactions to a specic

form of impression management, public presentations of overall strategy by Chief Executive

Ofcers (CEOs). Contrary to expectations from a “cheap talk” perspective, we suggest that

such strategy presentations convey valuable information to investors, especially in conditions of

heightened information asymmetry associated with varying types of new CEOs. Broad empirical

support for our theoretical arguments is shown in a sample of strategy presentations carried out

by NYSE and NASDAQ listed organizations over 10 years. Our research contributes to literature

on new CEOs and impression management. We draw out implications both for management and

for further research.

Managerial summary: We examine the impact of public presentations on company strategy

by Chief Executive Ofcers (CEOs) on company stock prices. Adjusting for market movements

in general, on average stock prices rose by 1.6percent following these strategy presentations.

Strategy presentations received larger reactions the more the CEO was unfamiliar to investors.

Thus, stock price gains for new CEOs in general were 5.3percent; for external, within-industry

new CEOs, they were 9.3percent; and for external, outside-of-industry new CEOs, they were

12.4 percent. Given that only 40 percent of new CEOs present on strategy in their rst 200 days

post-appointment, we suggest that new CEOs pay more attention to this potential means of

communicating, especially if they are unfamiliar to investors. Copyright © 2015 John Wiley &

Sons, Ltd.

INTRODUCTION

Speaking of new Chief Executives, Porter, Lorsch,

and Nohria (2004: 8) propose: “A key CEO role

is to sell the strategy and shape how analysts

and shareholders look at the company.” Where

investors are uninformed about strategy, they face

Keywords: impression management; new CEOs; strategy

presentations; event study methodology; voluntary disclo-

sures; open strategy

*Correspondence to: Richard Whittington Saïd Business School,

Park End Street, Oxford, OX16HP, United Kingdom Whittington.

E-mail: richard.whittington@sbs.ox.ac.uk

Copyright © 2015 John Wiley & Sons, Ltd.

the problem of information asymmetry, a dis-

crepancy between what investors as outsiders and

managers as insiders know about prospective per-

formance (Cohen and Dean, 2005; Zenger, 2013).

Information asymmetry leads to evaluative uncer-

tainty (Grafn and Ward, 2010), which impacts

negatively on stock prices and the cost of capital

(Glosten and Milgrom, 1985; Leuz and Verrecchia,

2000). This uncertainty may be particularly high in

the case of new CEOs, who are typically associated

with strategy change (Beatty and Zajac, 1987).

These arguments suggest there are important

potential gains to informing investors about