Is Positive Sentiment in Corporate Annual Reports Informative? Evidence from Deep Learning

Cash holdings and credit risk

Mehran Azimi and Anup Agrawal

The Review of Asset Pricing Studies, 2021, vol. 11, issue 4, 762-805

Abstract: We use a novel text classification approach from deep learning to more accurately measure sentiment in a large sample of 10-Ks. In contrast to most prior literature, we find that positive and negative sentiments predict abnormal returns and abnormal trading volume around the 10-K filing date and future firm fundamentals and policies. Our results suggest that the qualitative information contained in corporate annual reports is richer than previously found. Both positive and negative sentiments are informative when measured accurately, but they do not have symmetric implications, suggesting that a net sentiment measure advocated by prior studies would be less informative. (JEL C81, D83, G10, G14, G30, M41)

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:oup:rasset:v:11:y:2021:i:4:p:762-805.

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