A fascinating study by David Larcker and Anastasia Zakolyukina of Stanford’s Graduate School of Business provides some very helpful “tells” that suggest when CEOs are lying.  The researchers analyzed the transcripts of nearly 30,000 conference calls by American chief executives and chief financial officers between 2003 and 2007. They noted each boss’s choice of words, and how he delivered them. They drew on psychological studies that show how people speak differently when they are fibbing, testing whether these “tells” were more common during calls to discuss profits that were later “materially restated”, as the euphemism goes. They published their findings in a paper called “Detecting Deceptive Discussions in Conference Calls”.  A copy of the study may be found here.

Their key findings include:

• The liars tend to make more references to general knowledge (“as you know…”), and refer less to specific shareholder value.
• They use fewer “non-extreme positive emotion words”;, instead of describing something as “good”, they call it “fantastic” in an effort to “sound more persuasive”. 
• When they are lying, bosses avoid the word “I”, opting instead for the third person.
• They use fewer “hesitation words”, such as “um” and “er”, suggesting that they may have been coached in their deception.
• More frequent use of swear words indicates deception.

Of course, it won’t take long for the liars and their public-relations firms to incorporate these findings into their future statements, but for now be on the look-out for these tells, and expect “fantastic” results to become a thing of the past.