By analyzing the Q&A portions of earnings and conference calls, Rice University researcher found that outlooks and verbiage varied between people with cultural differences. rawpixel.com/Pexels

It's Alibaba's latest earnings call, and CEO Daniel Zhang is fielding questions during a Q&A. An analyst from the U.S. thinks Zhang sounds cautious, and leaves his forecast as is. But another analyst, who grew up in Shanghai as Zhang did, notes a certain cheerful nuance in his tone. After the call, she revises her earnings forecast for Alibaba upward. The market jumps.

It's an anecdote reported from earnings calls time and again: when an analyst and manager both come from the same, collectivist culture, the analyst somehow seems able to discern unspoken meaning in the manager's tone. This ability to detect underlying optimism or pessimism prompts these analysts to adjust their forecasts ⁠— and the market responds.

In a recent study, Rice Business professor Patricia Naranjo proved that this unspoken communication is real. When both analyst and manager in an earnings call come from collectivist cultures ⁠— that is, cultures that prize the group over the individual ⁠— the effect on the market is measurable,

Working with colleagues Francois Brochet of Boston University and Gregory S. Miller and Gwen Yu from the University of Michigan, Naranjo found that after an earnings conference call, markets responded more dramatically to revisions from analysts who had the same, collectivist ethnicity as the C-suite executives who spoke. The results suggest these "intra-cultural analysts" play a key role in getting stock prices to reflect managers' true outlook.

To measure this phenomenon, Naranjo and her team first amassed a sample of English-language earnings conference call transcripts from 2002 to 2012. The calls occurred within the three days around an earnings announcement. The final sample consisted of 57,740 conference calls held by 5,021 unique firms from across the globe.

The 24,901 executives from 42 countries who took part in the calls were mostly CEOs and CFOs, but there were also COOs, CMOs and IROs, among others. Of the managers, six percent were female and ten percent had a post graduate education. The average age of the executives was 52.77.

The researchers began with the premise that ethnicity helps shape an outlook that is either more or less individualistic. The researchers then assigned managers and sell-side analysts to likely ethnic groups, based on first and last names and an ethnicity-name matching technique. Assigned groups included Anglo-Saxon, Chinese, European, Hispanic, Indian, Japanese, Korean, Russian/Slavic, and Vietnamese.

Next, the researchers measured each ethnicity's individualism outlook, using an index based on analysis of 88,000 IBM employees in 72 countries. Unsurprisingly, Anglo-Saxons rated the highest on the individualism scale, followed by Europeans. Koreans and Chinese were the least individualistic, and were categorized as more group-oriented.

Now it was time to test the hypothesis. Did managers from more individualistic cultures have a more optimistic tone during conference calls? The prediction was based on psychology research showing that independent cultures – typically Western ⁠— place more emphasis on influencing individuals through shows of self-confidence and optimism. Because Q&As tend to be more spontaneous than scripted calls, Naranjo and her colleagues zeroed in on the Q&As to conduct their analysis. Their hypothesis proved correct: the managers from individualistic cultures did indeed speak with a more positive tone during the calls. They also used more first-person pronouns as they spoke.

The finding held true even for executives from individualistic cultures who had studied or worked in group-oriented cultures. Though these executives weren't quite as positive-sounding as counterparts who hadn't spent time in group-oriented cultures, the researchers concluded that the cultural traits the executives inherited from their native ethnic group were long-lasting.

Overall, the researchers also found, CEOs tended to speak more positively and use more singular first-person pronouns on average. Female managers used less optimistic language, and older managers tended to adopt a more pessimistic tone, but also used more singular first-person pronouns.

Finally, those analysts who shared a group-oriented cultural background with the managers on a conference call responded more strongly to the managers' tone ⁠— suggesting that they recognized the effect of culture on a speaker's tone of voice. Collectivist managers, as a rule, used less optimistic language.

When Naranjo's team studied individualistic analysts matched with group-oriented managers, the analysts' response was not as strong. Nor was there any pronounced special response when an analyst from a group-oriented culture was paired with an individualistic manager. When analysts are from different backgrounds as managers, in other words, there's no evidence that they will strongly revise a forecast in response to tone.

For investors tuning in to company conference calls, the findings speak volumes. For analysts and executives who share the same, collectivist background, important messages can go unspoken ⁠— and still be understood. Not only that, but when these "intra-cultural analysts" read between the lines and act on their intuitive cultural knowledge, the markets listen. Investors should take note as well.

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This article originally appeared on Rice Business Wisdom.

Patricia Naranjo is an assistant professor of accounting at Jones Graduate School of Business at Rice University.

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CultureMap Emails are Awesome

Med tech firm expands footprint, Houston innovator assumes new role, and more local innovation news

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Houston's innovation ecosystem has had some big news this month, from new job titles for Houston innovators to expanding office space.

In this roundup of Houston startup and innovation news, a Houston organization expands its footprint in the TMC, Rice University opens applications for a cleantech accelerator, and more.

Organization expands footprint in Houston

Proxima CRO has announced its expansion within TMCi. Photo via Twitter

Proxima Clinical Research, a contract research organization headquartered in Houston, announced that it is expanding its office space in the Texas Medical Center Innovation Factory.

"Texas Medical Center is synonymous with innovation, and the TMC Innovation space has proven an ideal location for our CRO. It's an important part of our origin story and a big part of our success," says Kevin Coker, CEO and co-founder of Proxima CRO, in a news release.

The expansion will include around 7,500-square feet of additional office space.

"The resources found across TMC's campuses allow for companies such as Proxima Clinical Research to achieve clinical and business milestones that will continue to shape the future of life sciences both regionally and globally. We are excited for Proxima to expand their footprint at TMC Innovation Factory as they further services for their MedTech customers," says Tom Luby, director of TMC Innovation, in the release.

$20M grant fuels hardtech program's expansion

Activate is planting its roots in Houston with a plan to have its first set of fellows next year. Photo via Activate.org

A hardtech-focused nonprofit officially announced its Houston expansion this week. Activate, which InnovationMap reported was setting up its fifth program here last month, received a $20M commitment by the National Science Foundation to fuel its entrance into the Bayou City.

“Houston’s diversity offers great promise in expanding access for the next generation of science entrepreneurs and as a center of innovation for advanced energy," says NSF SBIR/STTR program director Ben Schrag in a news release.

The organization was founded in Berkeley, California, in 2015 to bridge the gap between the federal and public sectors to deploy capital and resources into the innovators creating transformative products. The nonprofit expanded its programs to Boston and New York before launching a virtual fellowship program — Activate Anywhere, which is for scientists 50 or more miles outside one of the three hubs.

“We are delighted to be opening our newest Activate community in Houston,” says Activate Anywhere managing director Hannah Murnen, speaking at the annual Advanced Research Projects Agency-Energy Innovation Summit. “Houston is a city where innovation thrives, with an abundance of talent, capital, and infrastructure—the perfect setting for the Activate Fellowship.”

Activate is still looking its Houston’s first managing director is actively underway and will select fellows for Activate Houston in 2024.

TMC names new entrepreneur in residence

Zaffer Syed has assumed a new role at TMC. Photo via TMC.org

Houston health tech innovator has announced that he has joined the Texas Medical Center's Innovation Factory as entrepreneur in residence for medtech. Zaffer Syed assumed the new role this month, according to his LinkedIn, and he's been an adviser for the organization since 2017.

Syed has held a few leadership roles at Saranas Inc., a medical device company founded in Houston to detect internal bleeding following medical procedures. He now serves as adviser for the company.

"As CEO of Saranas, he led the recapitalization of the company that led to the FDA De Novo classification and commercial launch of a novel real-time internal bleed monitoring system for endovascular procedures," reads the TMC website. "Zaffer oversaw clinical development, regulatory affairs and strategic marketing at OrthoAccel Technologies, a private dental device startup focused on accelerating tooth movement in patients undergoing orthodontic treatment.

"Prior to working in startup ventures, Zaffer spent the first 13 years of his career in various operational roles at St. Jude Medical and Boston Scientific to support the development and commercialization of Class III implantable devices for cardiovascular and neuromodulation applications."

TMC is currently looking for an entrepreneur in residence for its TMCi Accelerator for Cancer Therapeutics program.

Applications open for clean energy startup program

Calling all clean energy startups. Photo courtesy of The Ion

The Clean Energy Accelerator, an energy transition accelerator housed at the Ion and run by the Rice Alliance for Technology and Entrepreneurship, has opened applications for Class 3. The deadline to apply is April 14.

The accelerator, which helps early-stage ventures reach technical and commercial milestones through hybrid programming and mentorship, will host its Class 3 cohort from July 25 to Sept. 22.

“Accelerating the transition to a net-zero future is a key goal at Rice University. Through accelerating the commercial potential of our own research as well as supporting the further adoption of global technologies right here in Houston, the Rice Alliance Clean Energy Accelerator is proof of that commitment,” says Paul Cherukuri, vice president of innovation at Rice, in a news release. “The Rice Alliance has all the critical components early-stage energy ventures need for success: a corporate innovation network, energy investor network, access to mentors and a well-developed curriculum. This accelerator program is a unique opportunity for energy startups to successfully launch and build their ventures and get access to the Houston energy ecosystem.”

According to Rice, the 29 alumni companies from Class 1 and 2 have gone on to secure grants, partnerships, and investments, including more than $75 million in funding. Companies can apply here, learn more about the accelerator here or attend the virtual information session April 3 by registering here.

Houston-based real estate giant rolls out sustainability-focused business unit

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Houston-based real estate investor, developer, and manager Hines is stepping up its commitment to sustainability.

The company just formed a business unit, EXP by Hines, that is aimed at addressing “the disruptive changes in the built environment.”

EXP by Hines comprises two parts: Global ESG and the Global Venture Lab. Doug Holte, who was a senior partner at Hines from 1987 to 2009, has been hired as CEO of EXP.

“EXP by Hines is an engine of growth using the most innovative ideas in capital, culture, and environmental stewardship to connect every stakeholder in the built environment and create healthy, activated communities,” Holte says in a news release. “EXP is looking beyond the boundaries of real estate to solve complex problems while creating long-term value.”

Peter Epping, who joined Hines in 2001, is the company’s global head of ESG (environmental, social, and governance). A 2022 survey by professional services firm Deloitte found that ESG continues to gain ground in the corporate world. Business executives questioned for the survey believe ESG strategies will:

  • Strengthen stakeholder trust
  • Elevate brand reputation
  • Boost employee retention
  • Improve ROI
  • Reduce risk

Kathryn Scheckel, who joined Hines in 2019, leads the company’s new Global Venture Lab, which is tasked with identifying and accelerating ventures, partnerships and investments. The lab includes a startup incubator and a VC arm.

According to the news release, priorities of the Global Venture Lab include innovations in the use of physical space, development of ESG solutions, and creation of “revolutionary built-world technologies.”

The efforts being spearheaded by Holte, Epping, and Scheckel are geared in part toward Hines achieving net zero carbon by 2040 in its nearly 231 million-square-foot global portfolio without buying carbon credits.