Louis Working Paper Series Beyond the Numbers : An Analysis of Optimistic and Pessimistic Language in Earnings Press Releases

By Angela K. Davis, Jeremy Piger, Lisa M. Sedor. 2006

126 citations recorded by the source corpus.

In this paper, we examine whether managers use optimistic and pessimistic language in earnings press releases to provide information about expected future firm performance to the market, and whether the market responds to optimistic and pessimistic language usage in earnings press releases after controlling for the earnings surprise and other factors likely to influence the market*s response to the earnings announcement. We use textual-analysis software to measure levels of optimistic and pessimistic language for a sample of approximately 24,000 earnings press releases issued between 1998 and 2003. We find a positive (negative) association between optimistic (pessimistic) language usage and future firm performance and a significant incremental market response to optimistic and pessimistic language usage in earnings press releases. Results suggest managers use optimistic and pessimistic language to provide credible information about expected future firm performance to the market, and that the market responds to managers' language usage.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/e6bc1639e56bef654a66f1910f88f5da523a1c55

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Citations in the corpus

News impact on stock price return via sentiment analysis (2014, background): “[10] analyzes the effects of optimistic or pessimistic language used in news on firms’ future performance.”
More than Words: Quantifying Language to Measure Firms' Fundamentals (2008, unknown): “Whereas Davis, Piger, and Sedor (2006) examine the contemporaneous relationships between earnings, returns, and qualitative information, Li (2006) focuses on the predictive ability of qualitative information as we do.”
“Measuring the Information Content of the Beige Book: A Mixed Data Sampling (2009, background): “, 2002); and other business communications, including earnings press releases (Davis et al., 2006).”
Annual Report Readability, Current Earnings, and Earnings Persistence (2008, background): “Third, Dechow and Ge (2005) find that the low persistence of earnings in low accrual firms is primarily driven by balance sheet adjustments relating to special items.”
Sentiment Polarity Identification in Financial News: A Cohesion-based Approach (2007, background): “Davis et al (2006) investigate the effects of optimistic or pessimistic language used in ﬁnan-cial press releases on future ﬁrm performance.”
Impression Management and Retrospective Sense-Making in Corporate Narratives: A Social Psychology Perspective (2011, background): “If managers use corporate narratives to provide useful incremental information, then positive organisational outcomes should be associated with the use of positive key words and negative organisational outcomes with the use of negative key words (Abrahamson and Amir, 1996; Henry, 2006; Davis et al.,”