How to Tell When a CEO Is Lying

In a nifty piece of forensic analysis, two researchers claim to have figured out how to tell when executives are lying. David Larcker and Anastasia Zakolyukina analyzed 30,000 conference calls between 2003 and 2007 to see if certain “tells” during the call were associated with earnings that were later “materially restated.””Deceptive bosses, it transpires, tend to make more references to general knowledge (‘as you know…’), and refer less to shareholder value (perhaps to minimize the risk of a lawsuit, the authors hypothesize),” reports The Economist. “They also use fewer ‘non-extreme positive emotion words.’ That is, instead of describing something as ‘good’, they call it ‘fantastic.’?The aim is to ‘sound more persuasive’ while talking horsefeathers.” (Remind anyone of?Realtors perhaps?)??The liars also used the third person (instead of “I”) and used fewer “hesitation words,” perhaps because they had been coached. [%comments]


I know when a CEO is lying -- his / her lips are moving.


"When their lips are moving."

Joking aside, interesting paper.

Ian Kemmish

The phrase "conference calls" sounds like they're only looking at the finished product. Everyone in business starts small.

The appeals to "common" knowledge and the lack of hesitation words can presumably be traced to meetings with staff and shareholders (before they got big enough to need conference calls) - both are useful tricks for wresting control of the meeting and preventing anyone from interrupting and pointing out the true nature of the Emperor's new clothes.

Plus, I'm not sure the company associated with the extreme emotive phrase "insanely great" has ever had to actually restate earnings, so the correlation appears less than perfect....

Bill Trent

Actually, Ian, a simple Google search for "Apple earnings restatement" would tell you that Apple had to restate earnings in 2006.

That aside, a slogan differs from how something is reported in a conference call, which is the subject of the paper. If Steve Jobs called the outlook for the next quarter "insanely great" we would need to be more worried.

Opinion expressed is my own, not that of my employer or any other entity.


I wrote a computer program for this purpose.

20 IF C.E.O. talking = false GOTO 10
30 RETURN True

Drill-Baby-Drill Drill Team

As you know, we have had FANTASTIC public response by (mostly) unwritten, non verifiable correspondences for our direction forward! Webster's defines positive shareholder value as increased material and NONMATERIAL gains--we have to look beyond the bottom line people.
If I were a stock, I'd BUY, BUY, BUY ME.
You smell that?....that's Profit being made!
I will now put on my sunglasses, because our future is SO BRIGHT!

And let me conclude, the future is ahead of us! ( ....Let's leave the sordid past behind.)


A lie/misconstruction follows whenever you hear the phrase

"Let's be clear about one thing."



i would also add that questioning them further leads to anger, rather than an actual answer- this was true of skilling on a conference call to investors, and of madoff, when questioned by auditors


There are quite a few flaws in this study. Check out this article by Joe Navarro, an ex-FBI guy who writes for Psychology Today. Navarro is an expert on non-verbal communication and behavioral analysis, and always an interesting read.

Cliff notes of article:
1) they never differentiate what the people are lying about.
2) conference calls are often scripted PR events, with many people putting the script together
3) use of 3rd person and swearing are not necessarily indicative of deception
4) read the article.

Barry Ritholtz

How do you get non-verbal cues on a telephone conference call ?

Melanie Dvis

I've listened to thousands of these calls over the last five years, and non-verbal doesn't mean non-vocal. The length of a pause between a question from an astute (or mean) analyst and the answer can tell plenty about the veracity of the answer. Tone of voice is another non-verbal tell, and when a previously expansive good ol' boy suddenly sounds tight and strained, it's obvious a nerve has been hit.

I may not have done the original study, but more often than not, I can catch anomalies between The Truth and The Word, particularly when I've covered the same company's calls every quarter for years. I knew that Circuit City was circling the drain a long time before they laid off everyone who knew what they were talking about, because I could "feel" the lies mounting.


i know when someone is lying - it is all about the incentive as the Freakonomics authors so clearly state. And since the freakonomics authors only make money when they can sell books, you know they will lie through their teeth if it helps them. it's all about the incentive after all.