President Donald Trump speaks during a teleconference with governors at the Federal Emergency … [+]
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With an unprecedented virus sweeping the globe, we are in uncharted territory. And there is no leadership book on how to manage through a pandemic.
Over the next weeks and months, scholars will investigate and empirically examine every aspect of different leadership models, attempting to better understand the consequences of leadership behavior.
Venky Shankar, Ph.D.,* a leading scholar from Texas A & M who investigates crises, has already begun to examine the effect of one form of leadership – President Trump’s communications. Below, Shankar shares insight on his research and important learning regarding how the market is reacting to Trump’s communications. He also provides learning for other leaders navigating this crisis.
Kimberly A. Whitler: What motivated you to study the impact of President Trump’s twitter communication?
Venky Shankar: Leadership in such a turbulent and uncertain time involves a clear communication strategy to the general public and the investors. Leaders typically act to play down the crisis to avert panic and show that they are in control. To get the word out quickly, some use social media to communicate directly with the populace. While this strategy appears reasonable, is this the right strategy?
Whitler: How is investigating the President’s tweets relevant for your research?
Shankar: At the country level, citizens and investors look up to the leader’s (the President in this case) remarks to guide their responses. Given President Trump’ penchant for communicating through Twitter, his tweets will likely play a key role in determining investors’ reactions to his messages.
Whitler: Before we get into the results, can you share a little about the research methodology?
Shankar: The research objective is to understand how the President’s tweets on coronavirus impacted stock markets. Without getting into too much detail, I analyzed the relationship between the coronavirus case data (e.g., the number of new cases, the total number of cases, the number of new deaths, the total number of deaths), reactions to the President’s communications (the number of likes and retweets of the President’s tweets on coronavirus) and market response (i.e., the various stock market indexes such as the Dow Jones Industrial Average, the S&P500 index, the Nasdaq composite, and the Russell 2000 index). I analyzed daily data from the first 50 days since the first reported case in the U.S. I then used a number of statistical and machine learning analyses to predict the stock market’s response to the President’s tweets over time.
Whitler: How did investors react to changes in the number of coronavirus cases?
Shankar: As expected, the stock market responded negatively. All the indexes declined significantly as a result of an increasing number of coronavirus cases. After controlling for time trend, for every 100 additional coronavirus cases reported, the DJIA declined by about 367 points (for reference, the number of new cases reported on each day during March 10-15 was over 200). Similarly, the Nasdaq composite diminished by about 124 points and the S&P500 index and the Russell 2000 index fell by about 42 and 32 points, respectively.
Whitler: When you added in the President’s communications, did you notice any change?
Shankar: Interestingly, the stock market also reacted adversely to the President’s tweets about coronavirus. All the indexes fell in response to likes and retweets of the President’s coronavirus tweets. After factoring the influence of time trend and the total number of coronavirus cases, retweets of the President’s coronavirus tweet had a significant negative impact on the indexes. For every 1,000 retweets (for reference, the President’s retweet figures are typically in tens of thousands) of one of the President’s tweets on coronavirus, the DJIA fell by about 43 points.
Whitler: Did you consider the sentiment of the tweets or analyze the content? For example, did investors respond the same way regardless of the content of the President’s tweets?
Shankar: To address this question, I analyzed the text of the President’s tweets using natural language processing and related the topics to changes in stock market indexes. My analysis provides interesting insights on how the President’s tweets worked. Three themes emerged from the tweets: information regarding government entities involved, actions/initiatives to reduce the spread, and comments on media and political parties.
Overall, the stock market reacted adversely to changes in the President’s assessment of the danger of coronavirus and of how it was being handled, but with interesting twists. To the extent the President’s tweets exacerbated the uncertainty surrounding the coronavirus spread and how it was tackled, the stock market indexes descended sharply. However, toward the middle of March, when the President’s tweets started conveying incremental progress on actions, these tweets arrested the decline in stock market indexes. In the beginning, the President’s tweets appeared to minimize the threat of coronavirus. As the situation became grim and the tweets contained comments on media and other parties, the stock market appeared to show a loss of confidence. Later, when the situation became alarming, the President’s tweets did acknowledge the gravity of the problem and communicated strong and immediate initiatives to contain the outbreak. Investors loathe uncertainty. The President’s later tweets appeared to signal some meaningful progress, quelling some fears. Thus, the later tweets helped slow the decline in stock market indexes.
Whitler: Any lessons on leadership communications you can provide others?
Shankar: My analysis offers three powerful lessons in leadership communication during a crisis.
1. Reduce, Don’t Magnify Uncertainty: It is important for leaders to reduce, rather than exacerbate, uncertainty. The way to do this is to consistently communicate real progress on the initiatives to reduce uncertainty and instill confidence. A good example of this would be Rudy Giuliani’s matter-of-fact regular press conferences during 9/11 where he focused communications not on the problems but rather on the steps being taken to make progress.
2. Set Reasonable Expectations: It is important for leaders to set the right expectations for followers, whether they are investors or the general public. If you incorrectly frame the situation (e.g., too alarmist or fail to acknowledge the threat), your credibility and that of the firm you represent will be at risk.
3. Be Careful with Twitter. This isn’t new news, but leaders need to remember that Twitter is a double-edged sword. Retweets of communication content that realistically address expectations may mitigate the adverse effects of a crisis, but those that are inconsistent with the audience’s expectations will only aggravate the negative outcomes.
Whitler: I know that you have a lot data, tables, and more analysis. How might people interested in your research best reach you?
Shankar: They can email me at [email protected] for an early copy of the article.
Join the Discussion: @KimWhitler
*Venky Shankar, Ph.D., is the Coleman Chair Professor of Marketing and Director of Research, Center for Retailing Studies, Mays Business School, Texas A&M University ([email protected]) and an expert on crisis management, having published several articles on this topic. He thanks Sohil Parsana for research assistance.
