Corporate Disclosure: Facts or Opinions?

When it comes to financial disclosure, headline numbers are not all that matters. Equally important are what company executives talk about – and even how they talk about it. A large and growing body of literature in finance and accounting establishes the usefulness of narrative disclosure for predicting a company’s future performance and returns. Many of these papers attempt to extract predictions from text using lexicon or machine learning approaches and, in general, interpret their results as capturing “sentiment.”

While it is clear that this sentiment, however measured, is useful, it is not clear why. One classic paper[1] interprets … Read more