The power of language in corporate financial reports

Financial information is extremely valuable to investors and other interested parties. This information, which can be qualitative or quantitative in nature, can be analyzed and subsequently used to try to predict future share prices and/or determine market sentiment. Financial writers need to bear this in mind when writing reports, as their message(s) could be interpreted in unexpected ways and this could cause undesirable market reactions. In this article, I provide an overview of some studies that examined the writing style and tone of financial reports. I also provide an overview of some studies that examined the use of positive and negative words in financial reports. I conclude with reference to some recent studies that involved the automatic analysis and classification of financial content. Whilst the success of automated tools has been limited, to a certain extent, tools are being used increasingly to assist with the daunting task of interpreting complicated and lengthy financial documents. Once these tools improve, it will not be so easy for financial writers to disguise bad news in the midst of good news.

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Conservatism, Optimal Disclosure Policy, and the Timeliness of Financial Reports

The Accounting Review ◽

10.2308/accr.2001.76.4.471 ◽

2001 ◽

Vol 76 (4) ◽

pp. 471-493 ◽

Cited By ~ 210

Author(s):

Frank B. Gigler ◽

Thomas Hemmer

Keyword(s):

Financial Reporting ◽

Alternative Explanation ◽

Bad News ◽

Good News ◽

Accounting System ◽

Voluntary Disclosures ◽

Accounting Earnings ◽

Financial Reports ◽

Disclosure Policy ◽

Conservative Accounting

We develop a theory of the relation between biases in financial reporting and managers' incentives to issue timely voluntary disclosures. We find that firms with relatively more conservative accounting are less likely to make timely voluntary disclosures than firms with less conservative accounting. Therefore, price is more timely in reflecting the news of firms with less conservative accounting. Prior research has assumed that the timeliness by which news is impounded in price is uncorrelated with the nature of accounting earnings and has ascribed a concave earnings-return relation to the accounting system reporting bad news on a more timely basis than good news. In our theory, a concave relation is not necessarily attributable to a difference in the way the accounting system reports good vs. bad news. Rather, our prediction stems from how biases in mandatory financial reports determine which firms optimally choose to make voluntary preemptive disclosures and which do not. Hence, our theory provides an alternative explanation for the empirical findings and cautions against interpreting them as evidence that accounting is conservative. Finally, we identify means of empirically distinguishing between the alternative explanations.

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Political news and stock market reactions: evidence from Turkey over the period 2008–2017

International Journal of Management and Economics ◽

10.2478/ijme-2019-0013 ◽

2019 ◽

Vol 55 (2) ◽

pp. 83-98

Author(s):

Sleiman Karime ◽

Özlem Sayilir

Keyword(s):

Stock Market ◽

Stock Return ◽

Global Financial Crisis ◽

Primary Objective ◽

Bad News ◽

Good News ◽

Market Reactions ◽

Political News ◽

The Guardian ◽

The Impact

Abstract The primary objective of the study is to examine the impact of political news (good and bad news) on the returns and volatility of Borsa Istanbul 100 Index (BIST-100). Sample data cover the period from January 2008 to December 2017. The main sample was divided into two subperiods to insulate the dominating impacts of both the 2008 Global Financial Crisis and 2013 Federal Reserve Tapering on Turkish stock markets. The daily stock market data were collected from the Electronic Data Delivery System (EVDS) web service, while political news headlines were collected from the Guardian newspaper. Different nonlinear volatility models (symmetric and asymmetric Generalized AutoRegressive Conditional Heteroskedasticity [GARCH]-type models) were used to model and estimate BIST-100 volatility in response to political news. The findings of the paper highlight four main results. First, there seems to be a significant impact of political news on the returns and volatility of BIST-100 index. Second, negative shocks derived from bad news tend to have a significant impact on the returns and volatility of BIST-100, while positive shocks derived from good news do not tend to have any significant impact on the returns, but decreased returns volatility. Third, political news, both good and bad, can affect stock return and stock return volatility in different directions, and this direction is time-varying. Fourth, the findings strongly reveal the presence of “Leverage Effect” in the returns of BIST-100 index. Therefore, one can say that political uncertainty is still a problem for the Turkish stock market.

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Sponsoring of professional cycling: what does it mean for stock prices?

International Journal of Sports Marketing and Sponsorship ◽

10.1108/ijsms-09-2016-0070 ◽

2018 ◽

Vol 19 (1) ◽

pp. 74-90 ◽

Cited By ~ 1

Author(s):

Morten Halsteinli Drivdal ◽

Helge A. Nordahl ◽

Håkon Rønes

Keyword(s):

Stock Market ◽

Stock Prices ◽

Negative Impact ◽

Bad News ◽

Good News ◽

Market Reactions ◽

Content Type ◽

As Doping ◽

Positive Effects ◽

Professional Cycling

Purpose The purpose of this paper is to assess how sponsorships affect firm values in professional cycling. Both the effect of entering a sponsorship contract and reactions to good or bad news during the contract period are investigated. Doping scandals are used as examples of bad news and race wins as examples of good news. Design/methodology/approach The well-known event-study methodology of analyzing stock prices is used. In order to avoid unnecessary noise, the main emphasis is on short-term stock market effects. Findings The main original finding is a significant negative reaction to doping scandals within the sponsored team, indicating that the outcome of sponsoring agreements is important for investors. There are no significant stock market reactions to the announcement of sponsorships, hence sponsoring cycling teams in general are perceived as value neutral to the sponsor. Originality/value The paper encourages sponsors and cycling teams to focus on anti-doping measures as doping scandals are perceived as value destructive. This contradicts previous studies with smaller data samples. The negative impact of doping scandals outweighs the potential positive effects of winning cycling races.

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