Stock returns and future tense language in 10-K reports

Rasa Karapandza

    Research output: Contribution to journalArticle

    Abstract

    This paper shows that firms talking less about the future in their annual reports generate positive abnormal returns of about 5% annually. I measure how much companies talk about the future in their annual 10-K reports by the frequency of the verbs will, shall, and going to. The evidence favors a risk-based interpretation: firms that use less future tense in their report offer higher returns since they are riskier. These results are consistent with finance theories stating that investors need to be rewarded for holding stocks of firms that put less information about the future in the marketplace.

    Original languageEnglish (US)
    Pages (from-to)50-61
    Number of pages12
    JournalJournal of Banking and Finance
    Volume71
    DOIs
    StatePublished - Oct 1 2016

    Fingerprint

    Stock returns
    Language
    Investors
    Finance
    Annual reports
    Abnormal returns

    Keywords

    • Anomalies
    • Asset pricing
    • Information risk
    • Text analysis

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

    Cite this

    Stock returns and future tense language in 10-K reports. / Karapandza, Rasa.

    In: Journal of Banking and Finance, Vol. 71, 01.10.2016, p. 50-61.

    Research output: Contribution to journalArticle

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