CEOs may need to add humor to their repertoire, as a recent study published in the Review of Accounting Studies suggests that cracking a joke during earnings calls can lead to a positive impact on a company’s stock price. Using machine-learning tools to analyze nearly 12,000 earnings calls, the research found that humor from executives could elicit a more favorable immediate market response.
The paper’s authors, Andrew Call, Rachel Flam, Joshua Lee, and Nathan Sharp, noted that when managers incorporate humor during earnings calls, it can result in more positive stock market returns and analyst forecast revisions, particularly when delivering negative earnings news. The use of humor was found to be significantly associated with the immediate market reaction, subsequent analyst behavior, and future firm performance.
The study revealed that stocks tend to perform better in the two days following an earnings call featuring jokes. A CEO’s sense of humor was shown to “soften the disclosure of negative news and signal relatively stronger future firm performance,” according to the researchers.
Despite the potential benefits, earnings calls typically lack humor, with only 12% of them including any comedic elements, as indicated in the paper.
One notable CEO who might have benefited from this research is Elon Musk of Tesla. During a third-quarter earnings call, Musk expressed a rather pessimistic outlook, discussing potential threats to the US economy and acknowledging potential challenges faced by the EV maker, particularly with its Cybertruck. The call received negative feedback from analysts, leading to a 13% drop in Tesla’s stock price over a two-day period, erasing approximately $100 million in market value, as calculated by Insider.