Artificial Intelligence (AI) is about to make it harder for CEOs to pull the wool over investors’ eyes.
A new study, entitled Slow Tone: Detecting White Lie Disclosures Using Response Latency, suggests the time it takes for a CEO to answer a question during a conference call could reveal whether they’re telling “white lies” – subtle distortions of the truth that aren’t outright fraud, but can still mislead investors. This time delay can indicate deceptive behaviour because it reflects the mental effort involved in crafting a misleading response.
The study, which is based on recent AI advances, found that when CEOs took longer than usual to answer questions, the tone of their subsequent responses was often overly positive and didn’t accurately reflect financial realities. Slower response times are associated with less detail, less guidance, more non-answers, and more ambiguity.
Executives are also more likely to tell white lies when they have a lot of stock options, and less likely to fib when there’s a high risk of getting sued.
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Importantly, analysts and investors initially miss these white lies, resulting in temporary stock price gains, only for such stocks to slip back over the following months. Going forward, investors may be quicker to spot warning signs.
As AI gets smarter, it’s becoming harder for CEOs to hide the truth.
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