Jockeying for Position in CEO Letters: Impression Management and Sentiment Analytics

Abstract

This paper evidences the strategic positioning of positive and negative words within a CEO letter as a subtle form of impression management. We find that managers tend to present information in such an order that the reader of the CEO letter has a more positive perception of the underlying message. We uncover a smile in the frequency of positive words within the letter, and a half smile in the intratextual distribution of negative words, with a prevalence of negative words at the beginning of the letter. We also find a significant positive association between this qualitative impression management and the use of abnormal accruals in earnings management. We propose sentiment analytics that can compensate for the strategic management of narrative structure and find that the proposed position weighted sentiment has more predictive power for the firm performance over the next year.

The influence of conference calls’ semantic characteristics on the company market performance: Text analysis

“…This result can be explained by the greater importance in the Russian stock market of the tone and topics of company management than market analysts, who are mainly only the link between corporations and the market. Besides, in previous works, the authors also received mixed results: this assumption was rejected in Price et al (2012), however, the opposite conclusion was provided in Boudt and Thewissen (2019). The results of testing the hypotheses 4-5 are presented in Table 8 (for a window of 14 calendar days after the call).…”

“…Additionally, the control variables are included in regression models that are estimated below. It is necessary, firstly, to fix the effect of non-financial information on the company's future market performance and its tonality level, and secondly, these factors have been successfully tested and applied in recent empirical studies in this field (Davis et al, 2006(Davis et al, , 2012Demers and Vega, 2008;Price et al, 2012;Boudt and Thewissen, 2019;Fyodorova et al, 2017, where these variables improved the general explanatory power and significance of the regression model.…”

Disclosure characteristics of firms being investigated by the SEC

“…Allee and DeAngelis () argue that tone dispersion is associated with company performance and that the tone level changes are associated with managers' incentives to manipulate perceptions when firm performance is unusually low or high. Boudt and Thewissen () discover a significant positive association between tone management and the use of abnormal accruals in earnings management. D'Augusta and DeAngelis () propose that the effect of earnings performance on disclosure tone is intricate but reflects managers' motivations to regulate market expectations.…”

Gender-Sensitive Language in German Annual Reports

“…Additionally, Davis et al (2015) document that the mean for the optimistic tone measured by the L&M word list is lower in relation to the other two measures, due to the significantly higher number of negative (2,337) than positive words (353) using DICTION (914 negative, 697 positive) and Henry's (2006) wordlist (98 negative, 188 positive). Examining CEO letters, Boudt and Thewissen (2016) show that CEOs present negative and positive words strategically in their letters in order to create a more positive perception by the reader. In their current working paper, Bannier et al (2017) analyze market reactions to the sentiment of CEO speeches held at companies' annual general meetings and show that investors react significantly to the speeches' textual sentiment in terms of abnormal stocks returns and trading volume.…”