In four experiments, we examine CEO personal vulnerability disclosures across technology and pharmaceutical industry settings, demonstrating that such disclosures can shape how individual investors evaluate firms. Disclosing vulnerabilities unrelated to the company increases investor trust and enhances evaluations of more-optimistic forecasts, as well as reduces negative reactions to bad earnings news. However, when CEO vulnerability disclosure pertains to a company-related vulnerability, investors perceived CEOs as less competent. CEOs should consider the trade-off between enhanced trust and reduced perceived competence when disclosing personal vulnerabilities to investors, and investors should be wary about managers who may be strategically attempting to appear vulnerable.
Farzaneh Mahmoudi, PhD Student, University of Maryland; Nick Seybert, Associate Professor, University of Maryland
Contemporary Accounting Research