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Beyond the words - A correlational study of the tone of CEO letters in relation to the stock market performance in Japan, Sweden, and the United States

Pantenburg, Lukas LU and Nordbring, Markus LU (2021) MGTN59 20211
Department of Business Administration
Abstract
Previous research has shown the importance of the CEO letter in a company’s annual report,
with it being one of the most widely read parts. Despite this, it is compared to most other parts
in the annual report not audited, meaning that the CEO can write whatever they see fit without
any precautions. Based on this research, the purpose of this study was to analyse whether the
tone of reported information in CEO letters is somehow connected to future stock market
performance, and therefore assess if the tone is a useful indicator for investors when deciding
to invest in a company or not. Since similar studies have mostly focused on the United States,
this study focused on three countries on three continents, Sweden, Japan, and the... (More)
Previous research has shown the importance of the CEO letter in a company’s annual report,
with it being one of the most widely read parts. Despite this, it is compared to most other parts
in the annual report not audited, meaning that the CEO can write whatever they see fit without
any precautions. Based on this research, the purpose of this study was to analyse whether the
tone of reported information in CEO letters is somehow connected to future stock market
performance, and therefore assess if the tone is a useful indicator for investors when deciding
to invest in a company or not. Since similar studies have mostly focused on the United States,
this study focused on three countries on three continents, Sweden, Japan, and the United States,
to see if the trends previously found in the United States are transferable to other countries and
contexts. A text analysis of CEO letters from 300 companies, 100 letters per country, was
conducted to analyse tone and later compared to the stock market performance measure of
market-adjusted return. The results of this study showed that there is a significant, however
weak, correlation between tonality in the CEO letters and future stock market performance,
with positive tone having the strongest correlation. The study found different relationships
between the tone and stock market performance across countries, with Japan standing out as
the most dissimilar to Sweden and the US. These results might indicate that CEOs in different
countries of the world act dissimilar when communicating with their shareholders through the
CEO letter. It is suggested that future research further investigates the differences between the
tone in the CEO letter and future stock market performance across countries and the possible
reasons for these differences. (Less)
Please use this url to cite or link to this publication:
author
Pantenburg, Lukas LU and Nordbring, Markus LU
supervisor
organization
course
MGTN59 20211
year
type
H1 - Master's Degree (One Year)
subject
keywords
CEO letters, Stock market performance, Textual analysis, Tone, Correlational study, United States, Sweden, Japan
language
English
id
9046987
date added to LUP
2021-06-22 08:59:50
date last changed
2021-06-22 08:59:50
@misc{9046987,
  abstract     = {{Previous research has shown the importance of the CEO letter in a company’s annual report,
with it being one of the most widely read parts. Despite this, it is compared to most other parts
in the annual report not audited, meaning that the CEO can write whatever they see fit without
any precautions. Based on this research, the purpose of this study was to analyse whether the
tone of reported information in CEO letters is somehow connected to future stock market
performance, and therefore assess if the tone is a useful indicator for investors when deciding
to invest in a company or not. Since similar studies have mostly focused on the United States,
this study focused on three countries on three continents, Sweden, Japan, and the United States,
to see if the trends previously found in the United States are transferable to other countries and
contexts. A text analysis of CEO letters from 300 companies, 100 letters per country, was
conducted to analyse tone and later compared to the stock market performance measure of
market-adjusted return. The results of this study showed that there is a significant, however
weak, correlation between tonality in the CEO letters and future stock market performance,
with positive tone having the strongest correlation. The study found different relationships
between the tone and stock market performance across countries, with Japan standing out as
the most dissimilar to Sweden and the US. These results might indicate that CEOs in different
countries of the world act dissimilar when communicating with their shareholders through the
CEO letter. It is suggested that future research further investigates the differences between the
tone in the CEO letter and future stock market performance across countries and the possible
reasons for these differences.}},
  author       = {{Pantenburg, Lukas and Nordbring, Markus}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Beyond the words - A correlational study of the tone of CEO letters in relation to the stock market performance in Japan, Sweden, and the United States}},
  year         = {{2021}},
}