The Power of Voice: Managerial Affective States and Future Firm Performance

We measure managerial affective states during earnings conference calls by analyzing conference call audio files using vocal emotion analysis software. We hypothesize and find that, when managers are scrutinized by analysts during conference calls, positive and negative affects displayed by managers are informative about the firm's financial future. Analysts do not incorporate this information when forecasting near‐term earnings. When making stock recommendation changes, however, analysts incorporate positive but not negative affect. This study presents new evidence that managerial vocal cues contain useful information about a firm's fundamentals, incremental to both quantitative earnings information and qualitative “soft” information conveyed by linguistic content.     

Analyzing Speech to Detect Financial Misreporting

We examine whether vocal markers of cognitive dissonance are useful for detecting financial misreporting. We use speech samples of CEOs during earnings conference calls, and generate vocal dissonance markers using automated vocal emotion analysis software. We begin by assessing construct validity for the software‐generated dissonance markers by correlating them with four dissonance‐from‐misreporting proxies obtained in a laboratory setting. We find a positive association between these proxies and vocal dissonance markers generated by the software, suggesting the software's dissonance markers have construct validity. Applying the software to CEO speech, we find that vocal dissonance markers are positively associated with the likelihood of irregularity restatements. The diagnostic accuracy levels are 11% better than chance and of similar magnitude to models based solely on financial accounting information. Moreover, the association between vocal dissonance markers and irregularity restatements holds even after controlling for financial accounting and linguistic‐based predictors. Our results provide new evidence on the role of vocal cues in detecting financial misreporting.     

Accelerated Vesting of Employee Stock Options in Anticipation of FAS 123-R

In December 2004, the Financial Accounting Standards Board (FASB) mandated the use of a fair value–based measurement attribute to value employee stock options (ESOs) via Financial Accounting Standard (FAS) 123-R. In anticipation of FAS 123-R, between March 2004 and November 2005, several firms accelerate the vesting of ESOs to avoid recognizing existing unvested ESO grants at fair value in future financial statements. We find that the likelihood of accelerated vesting is higher if (1) acceleration has a greater effect on future ESO compensation expense, especially related to underwater options, and (2) firms suffer greater agency problems, proxied by fewer blockholders, lower pension fund ownership, and top five officers holding a greater share of ESOs. We also find a negative stock price reaction around the announcement of the acceleration decision. Furthermore, stock returns are significantly negative before the new vesting dates and positive afterward, suggesting that vesting dates could have been backdated.     

Improving Experienced Auditors’ Detection of Deception in CEO Narratives

We experimentally study the deception detection capabilities of experienced auditors, using CEO narratives from earnings conference calls as case materials. We randomly assign narratives of fraud and nonfraud companies to auditors as well as the presence versus absence of an instruction explaining that cognitive dissonance in speech is helpful for detecting deception. We predict this instruction will weaken auditors’ learned tendency to overlook fraud cues. We find that auditors’ deception judgments are less accurate for fraud companies than for nonfraud companies, unless they receive this instruction. We also find that instructed auditors more extensively describe red flags for fraud companies and more accurately identify specific sentences in narratives that pertain to underlying frauds. These findings indicate that instructing experienced auditors to be alert for cognitive dissonance in CEO narratives can activate deception detection capabilities.     

The Role of Fiscal and Monetary Policies in Sustaining Growth With Stability in India*

The performance of the Indian economy in recent years has attracted increasing international interest. This paper focuses on the role of fiscal and monetary policies in the evolution of the Indian economy over the years, with particular attention being given to the reforms undertaken in these policies since the early 1990s. The coordination of fiscal and monetary policies has been crucial in the sequencing of the economic reform process carried out since the early 1990s. Monetary policy aims to maintain a judicious balance between price stability and economic growth. With the opening up of the Indian economy and the spread of financial sector reforms aimed at functional autonomy, prudential strengthening, operational efficiency, and competitiveness of banks, considerations of financial stability have assumed greater importance in recent years alongside the increasing openness of the Indian economy. The biggest challenge facing the conduct of fiscal and monetary policy in India is to continue the accelerated growth process while maintaining price and financial stability. Therefore, the self‐imposed rule‐based fiscal correction at both the national and subnational levels has to be consolidated and carried forward. The existence of a high level of fiscal deficit also contributes to the persistence of an interest rate differential with the rest of the world, which then also constrains progress toward full capital account convertibility. The success achieved in revenue buoyancy through tax rationalization and compliance has to be strengthened further.     

The Forms of Monopoly Land Rent and Agrarian Organization

The incidence of diverse forms of surplus – fixed rents, share rents, profits from direct cultivation and labour rents – remains a conundrum in the study of agrarian organization. The article presents a theoretical account of the form of rent when a dominant landowner faces landowning peasants. From a purely economic standpoint, the surplus-maximizing choice among forms is shown to be contingent not only on their incentive and labour-process characteristics but also on land inequality and labour productivity. By incorporating the difficulty of extracting effort from hired labour as a fixed parameter, political and ideological factors are accommodated as independent additional determinants of the form of agrarian organization. When there is also a class of landless labourers, sharecropping or labour-tying may prove superior to wage-leadership as a form of tacit collusion among dominant and subordinate landowners. Some of these forms of rent extraction are also shown to restrict the monopolist's incentive to adopt technical improvements.