CEO Regulatory Focus as an Interpretive Frame: An Empirical Examination of Investor Perceptions in the Context of Earning Deviations

Investors perceive a CEO’s regulatory foci based on the language they use. Complementing earlier studies on the direct effects of CEO regulatory focus, we propose a novel theoretical paradigm in which CEOs’ regulatory-focused language act as interpretive frames shaping investors’ reactions to earnings deviations—the positive or negative earnings deviations from analysts’ expectations. We propose that investor reactions to earnings deviations will be amplified when investors perceive a CEO to have higher promotion focus, and dampened when investors perceive a CEO to have higher prevention focus. We employ a multimethod approach to test our theorizing; we use an archival study of S&P 500 firms from 2003 to 2017 to test our hypotheses, and two preregistered randomized vignette experiments to explore the underlying investor attributions theorized in our framework. Across all studies, we find broad support for our theorization regarding how CEO regulatory-focused language acts as interpretive frames for investors, which has important implications for research on the social view of financial markets and CEO regulatory focus.