Unprofitable hype: a rant.

I'm grateful to Matthew Lynn in the Daily Telegraph newspaper for alerting me to the research results of academics Pratik Kothari, Don M Chance and Stephen P Ferris from the University of Missouri. 

Kothari's team investigated the link between a company's success in terms of profitability and the claims it has made for itself.

As in other walks of life, companies are all-too-ready to designate their own performance as astonishing, incredible, amazing or massive: but it turns out that only incredible is actually true.

Kothari's team looked at all the companies in the S&P 500 list of companies who used extremely flattering language - amazing, or sensational, for instance - to describe their own performance over the period 1999 - 2014. Then the team compared those companies' increases in value over this period with those of other companies on the list.

It turned out that only 18% of these boasting companies markedly increased shareholder value, and that the performance of 75% of them was more or less the same as the average for the whole S&P 500 list. 

7%, amusingly (as long as you haven't fallen for the hype), did significantly worse than average.

The results of Kothari's study are that 'unjustified claims of remarkable performance are the norm'. And that 'boasting about performance is rarely associated with value creation and is consistent with executive narcissism'.

Well, that's no surprise to anyone, is it? People generally notice by themselves if a company has done something profitable. It's only when it hasn't that it has to start bragging to attract attention and investment.

Well, thank heavens people who boast constantly about their business acumen seldom have much power in the real world...

...oh.

Word To Use Today: braggart. This word has been around, doing a very very good job, an amazing job, since the 1200s; but sadly no one knows from whence it came.