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When does the tone of earnings press releases matter?

Kris Boudt, James Thewissen () and Wouter Torsin

International Review of Financial Analysis, 2018, vol. 57, issue C, 231-245

Abstract: The tone of a firm's financial disclosure is increasingly used as a variable in panel data regressions to predict future performance and explain investors' reaction at earnings announcement. We investigate when tone is informative, and argue that the informativeness of tone increases with the information asymmetry between firms and investors. Using a sample of over 50,000 earnings press releases of about 1800 U.S. public firms between 2004 and 2015, we find that firm growth, size, age, complexity and forecast inaccuracy are key drivers of tone informativeness. The effect is economically significant, since, compared to the reference case of a transparent firm, we find that the slope coefficient of tone doubles or even quadruples in panel data regressions when the firm operates in an environment with high information asymmetry.

Keywords: Textual sentiment; Firm performance; Investor reaction; Tone informativeness; Information asymmetry (search for similar items in EconPapers)
Date: 2018
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Working Paper: When does the tone of earnings press releases matter? (2018)
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DOI: 10.1016/j.irfa.2018.02.002

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