Market reaction to the positiveness of annual report narratives

Yekini, Liafisu Sina; Wisniewski, Tomasz Piotr; Millo, Yuval

doi:10.1016/j.bar.2015.12.001

Cited by 79 publications

(96 citation statements)

References 87 publications

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“…Accordingly, recent accounting and finance research has paid attention to the association of linguistic attributes of corporate reports with corporate behavior and economic outcomes (Biddle, Hilary, & Verdi, 2009;Davis, Piger, & Sedor, 2012;Huang et al, 2014;Larcker & Zakolyukina, 2012;Li, 2008;Rogers, Van Buskirk, & Zechman, 2011). The sentiment (i.e., tone) of messages reflected in annual reports (Henry, 2008;Huang et al, 2014;Yekini, Wisniewski, & Millo, 2016) tends to influence investors' and analysts' views about firms. Similarly, one can argue that annual report tone would be associated with audit risk assessment (see Lopatta, Gloger, & Jaeschke, 2017;Yang, Yu, Liu, & Wu, 2018), as, for example, auditing standards require auditors' perusal of information that accompanies audited financial statements (International Federation of Accountants, 2012).…”

Section: Introductionmentioning

confidence: 99%

Optimistic tone and audit fees: Some Australian evidence

et al. 2019

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We examine whether the tone of corporate annual reports is associated with audit pricing decisions. A unique dataset drawn from annual reports of nonfinancial firms listed on the Australian Stock Exchange for the period from 2002 to 2014 is generated using textual analysis. We find that annual reports that convey optimistic tone are associated with lower audit fees, suggesting that annual report tone reflects factors that auditors consider in assessing audit risk. Consistent with the inverse association between tone and audit fees, results of additional analysis show that annual report tone is positively associated with earnings quality. Our results hold after controlling for firm characteristics that influence audit pricing decisions and remain robust to alternative variable measurement and test of endogeneity. Overall, the findings suggest that auditors could enhance their audit risk assessment practices by systematically considering linguistic attributes of qualitative corporate disclosures.

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Section: Introductionmentioning

confidence: 99%

Optimistic tone and audit fees: Some Australian evidence

et al. 2019

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“…Thus, financial performance can be examined in relation to managerial behaviour (Merkl-Davies et al, 2011) and the expected reactions of stakeholders (Yekini, Wisniewski, & Yuval, 2016). The necessity of merging qualitative and quantitative assessment is mentioned in the evaluation of all types of firms, financial (Belás, 2012;Todea & Lazar, 2012) and non-financial (Cardinaels & van Veen-Dirks, 2010;Golas & Kurzawa, 2016), although a bias resulting from the subjectivity of the qualitative assessment has been referred to by several authors (Hitz, 2007;Gottdiener, 2008).…”

Section: Literature Reviewmentioning

confidence: 99%

Comprehensive assessment of firm financial performance using financial ratios and linguistic analysis of annual reports

Myšková¹,

Hájek²

2017

Journal of International Studies

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Abstract. Indicators of financial performance, especially financial ratio analysis, have become important financial decision-support information used by firm management and other stakeholders to assess financial stability and growth potential. However, additional information may be hidden in management communication. The article deals with the analysis of the annual reports of U.S. firms from both points of view, a financial one based on a set of financial ratios, and a linguistic one based on the analysis of other information presented by firms in their annual reports. Spearman correlation coefficient is used to compare the values of financial and linguistic indicators. For the purpose of the comprehensive assessment, novel word lists are proposed, specifically designed for each category of financial analysis. The aim is to assess the information ability of annual reports and whether successful firms present their results precisely or not. The results show that the proposed topic dictionaries can be beneficial, especially for the assessment of cash flow and leverage ratios.

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“…In this respect, Fiss and Zajac's () findings indicate that firms that undertake strategic change elicit positive shareholder reactions when they use a balancing frame in their disclosures, which recognizes the claims of common organizational stakeholders’ in addition to shareholders. Finally, Yekini et al () also found a significant positive association between the degree of positiveness of companies’ annual reports and abnormal returns around disclosure dates. Overall, the literature on corporate disclosures provides an empirical basis for the argument that the use of an affective tone that induces a positive impression of the organization is likely to motivate shareholders to maintain their investment ties.…”

Section: Hypothesis Developmentmentioning

confidence: 91%

Riding off into the Sunset: Organizational Sensegiving, Shareholder Sensemaking, and Reactions to CEO Retirement

Bilgili

Campbell

Ellstrand

et al. 2017

J Management Studies

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We test hypotheses derived from resource dependence and sensemaking/sensegiving theoretical lenses in the context of CEO succession, focusing on an under‐researched yet prevalent type of executive turnover – CEO retirement. Using event study methodology and a sample of CEO retirements from S&P 1500 firms during the 2003–12 period, we find that, all else equal, shareholders’ perceptions of organizations’ capacity to serve their interests are adversely affected when a retirement related change occurs in the leadership structure. Specifically, in line with resource dependence theory, we find that CEO retirement disclosures typically generate negative abnormal returns. Furthermore, in line with the sensemaking perspective, we find that the magnitude of shareholders’ reactions is contingent on the lexical sensegiving cues contained in the organizational narratives that are released to capital markets via executive retirement announcements. Overall, our theory and results point to CEO retirement events as consequential in the eyes of shareholders, challenging an important assumption of extant succession research. Moreover, they suggest that shareholders’ interpretation of these events is influenced by organizational sensegiving, highlighting the important role of organizational communication around succession events.

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Market reaction to the positiveness of annual report narratives

Cited by 79 publications

References 87 publications

Optimistic tone and audit fees: Some Australian evidence

Optimistic tone and audit fees: Some Australian evidence

Comprehensive assessment of firm financial performance using financial ratios and linguistic analysis of annual reports

Riding off into the Sunset: Organizational Sensegiving, Shareholder Sensemaking, and Reactions to CEO Retirement

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