The persuasive effect of emotions : an empirical study based on video data of performance presentations

Abstract

 The supply and demand for information have become increasingly vital components of economic activity and social progress. The manner in which information is conveyed can significantly impact its effectiveness. In corporate earnings presentations, executives who project confidence and positivity through emotional and facial expression management are more likely to persuade investors to increase their holdings. This study analyzes the effects of executives' emotion management during these presentations, demonstrating that positive emotions enhance the persuasive impact of the information disclosed. The COVID-19 pandemic presented a severe global health crisis, leading to substantial loss of life and the implementation of strict travel restrictions. These restrictions provided a unique opportunity to examine the impact of different corporate information dissemination methods. Due to these restrictions, some firms were unable to hold offline earnings briefings as scheduled. This study collects and analyzes video data from CSI 300 companies that conducted performance briefings, utilizing video analysis techniques to score the facial expressions of executives. By distinguishing whether executives displayed positive emotions during the meetings, the study investigates the impact of these emotions on the persuasive effect of the information conveyed. A generalized Difference-in-Differences (DID) analysis is employed to examine the effect of positive executive sentiment on stock prices and turnover. The findings reveal that when executives display positive emotions, stock prices increase by 5.48% in the subsequent period, while turnover decreases by 6.03% in the following two months. To account for potential disruptions caused by earnings releases, a Regression Discontinuity in Differences (RD-DD) identification strategy is utilized, following methodologies proposed by Gong et al. (2014a, 2014b) and Deshpande (2016). The results indicate that the impact of executives' emotions is more pronounced under the RD-DD identification strategy. Specifically, when executives display positive emotions more than 75% of the time during earnings presentations, this leads to a 27.9% increase in stock price and a 6.72% decrease in trading volume in the following month. From an information transmission perspective, the persuasive effects of executive emotions are influenced not only by the information producer but also by the receiver. The study finds that the persuasive effect of positive executive emotions varies depending on the investor type. Compared to stocks with a high proportion of individual investors, those with a higher share of institutional investors experience a 0.4% smaller increase in stock price due to positive executive emotions. This difference expands to 27.3% under the RD-DD identification strategy, reflecting that individual investors are more likely to make emotional decisions influenced by executives. A series of robustness tests further corroborate the conclusion that positive executive emotions exert a significant persuasive effect on investors.