The way organizations communicate their strategies, particularly when using war-related metaphors, can significantly influence stakeholder’s perceptions, especially financial analysts. This is the conclusion of research by João Cotter Salvado, Assistant Professor of Strategy and Entrepreneurship at CATÓLICA-LISBON and Academic Director of the Center for Technological Innovation and Entrepreneurship (CTIE). His findings were recently published in the Harvard Business Review and will soon appear in Organizational Science.

The article, titled “Analyst Reaction to War-Related Language: Source Domains and the Role of Market Structure and Market Share”, was co-authored with Donal Crilly, Professor of Strategy and Entrepreneurship at the London Business School. It examined the impact of war-related metaphors, such as "declaring war on the competition", in communication with financial analysts. The researchers analyzed 999 acquisition announcements made by publicly traded U.S. companies between 2004 and 2016.

“We focused on acquisition announcement calls, where CEOs explain their strategic decisions, using transcripts of these calls to examine the language employed. Specifically, we analyzed the frequency of war-related metaphors and their effect on financial analysts’ reactions”, the researchers explained.

The findings revealed that CEO’s use of war-related metaphors is associated with a more negative reception by financial analysts. A mere 1% increase in the use of war-related terms resulted in a 20% more negative assessment in analysts' reports.

“The reason for this negative reaction lies in how war metaphors shape risk perception. War-related language evokes images of conflict, destruction, and high risk, which can trigger emotional responses associated with danger. Analysts, whose role is to assess risks and rewards, may interpret this language as a signal that the company is adopting an overly aggressive and risky stance”, the authors clarified.

The research highlights that while war metaphors are often used to convey strength and confidence, they may instead signal excessive risk and aggression, particularly in highly concentrated markets or during periods of economic volatility.

The negative impact of such language was especially pronounced in highly concentrated markets, where a few players dominate most of the market share. In these contexts, analysts tend to value cautious and strategic actions. War-related metaphors, in this case, raise concerns about unnecessary aggression that could destabilize the market.

Moreover, the study revealed that overall market conditions play a crucial role in how war metaphors are received. During periods of high market volatility, measured by the VIX index (commonly referred to as the “fear index”), the adverse impact of war-related language was even more pronounced. When the VIX was elevated, reflecting greater investor concern and uncertainty, war metaphors in corporate communication triggered significantly stronger negative reactions from analysts. In contrast, under more stable market conditions, when the VIX was low, the negative impact of such metaphors was less severe. These findings suggest that aggressive language amplifies analyst’s concerns about instability and recklessness in volatile market environments where risk aversion is heightened.

This research, conducted at CATÓLICA-LISBON, underscores the institution’s central role in producing academic knowledge with relevant practical applications. Studies like this emphasize the importance of understanding the impact of strategic communication on decision-making in global markets.

The article published in the Harvard Business Review is available here.