Corporate Disclosure: Facts or Opinions?

Shimon Kogan and Vitaly Meursault
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Vitaly Meursault: https://www.philadelphiafed.org/our-people/meursault-vitaly

No 21-40, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: A large body of literature documents the link between textual communication (e.g., news articles, earnings calls) and firm fundamentals, either through pre-defined “sentiment” dictionaries or through machine learning approaches. Surprisingly, little is known about why textual communication matters. In this paper, we take a step in that direction by developing a new methodology to automatically classify statements into objective (“facts”) and subjective (“opinions”) and apply it to transcripts of earnings calls. The large scale estimation suggests several novel results: (1) Facts and opinions are both prominent parts of corporate disclosure, taking up roughly equal parts, (2) higher prevalence of opinions is associated with investor disagreement, (3) anomaly returns are realized around the disclosure of opinions rather than facts, and (4) facts have a much stronger correlation with contemporaneous financial performance but facts and opinions have an equally strong association with financial results for the next quarter.

Keywords: Subjectivity; Machine Learning; NLP; Text Analysis (search for similar items in EconPapers)
JEL-codes: C00 G12 G14 (search for similar items in EconPapers)
Pages: 51
Date: 2021-11-26
New Economics Papers: this item is included in nep-big and nep-cmp
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedpwp:93414

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DOI: 10.21799/frbp.wp.2021.40

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