Context Matters: Charismatic Communication and Investor Reactions

This paper studies whether and how charismatic communication influences investor reactions. We develop a scalable, theory-based measure of managerial charisma grounded in charismatic leadership research and apply it to a large sample of earnings call transcripts. Using transformer-based embeddings, we quantify managers' use of charismatic tactics-such as storytelling, analogies, three-part lists, and contrasts-separately in prepared remarks and Q&A interactions. We show that charisma is not subsumed by conventional textual features but instead captures a distinct dimension of managerial communication. Its economic effects, however, depend critically on context. In prepared remarks, charisma is positively associated with market reactions, suggesting that it enhances the persuasiveness and clarity of managerial disclosure. In contrast, during Q&A-where investors expect precise and responsive answers-greater reliance on charismatic tactics predicts negative market reactions. Cross-sectional tests support this interpretation: the positive effects of charisma in prepared remarks attenuate following negative earnings news, while the negative effects of charisma in Q&A intensify when performance is weak and language is more complex. Collectively, the evidence shows that rhetorical style shapes investor beliefs, but its valuation consequences depend on whether it complements or substitutes for credible information.