optimistic

optimistic - Beyond the Numbers: An Analysis of Optimistic...

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Beyond the Numbers: An Analysis of Optimistic and Pessimistic Language in Earnings Press Releases Angela K. Davis Washington University, Olin School of Business, St. Louis, MO Jeremy M. Piger Federal Reserve Bank of St. Louis, St. Louis, MO Lisa M. Sedor University of Notre Dame, Mendoza College of Business, Notre Dame, IN January 2006 We thank Franklin Williams, Mikhail Pevzner and Michelle Armesto for research assistance. We thank Bob Bowen, Rich Frankel, Greg Hess, Ron King, Dawn Matsumoto, James Morley and workshop participants at the University of Oregon, University of Utah, and the 2006 Washington University Accounting Research Conference for helpful comments. The views expressed in this paper should not be interpreted as reflecting the views of the Federal Reserve Bank of St. Louis or the Federal Reserve System.
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Beyond the Numbers: An Analysis of Optimistic and Pessimistic Language in Earnings Press Releases Abstract: 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.
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1. INTRODUCTION Earnings press releases have been characterized as, “the major news event of the season for many companies as well as investors, analysts, financial media, and the market” (Lewis and Mahoney 2004). Required by the NYSE and NASDAQ, earnings press releases comprise an important element of a firm’s overall disclosure strategy and communicate information to investors in both numerical and narrative forms. Recent academic research demonstrates that the information content of earnings press releases has increased in recent decades (Collins et al. 2005; Francis et al. 2002a; Francis et al. 2002b; Landsman and Maydew 2002; Lo and Lys 2001; Kross and Kim 2000). However, this work has focused primarily on elements of numerical disclosures (e.g., the announcement of earnings per se) rather than on elements of narrative disclosures (e.g., the language used) in earnings press releases.
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optimistic - Beyond the Numbers: An Analysis of Optimistic...

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