Annual report tone and divergence of opinion: evidence from textual analysis

Figures & data

Table 1. Variable definitions.

Variable	Definitions
PTone (%)	Positive annual report tone: positive minus negative words divided by total words accounts in the full annual report, then it times 100.
NTone (%)	Negative annual report tone is calculated as the number of negative words divided by the total number of words, then it multiplying by 100. Positive/negative is classified according to National University of Taiwan Chinese Semantic Dictionary.
DISP	Dispersion of analyst forecast which is computed as the value obtained by dividing the standard deviation of company i’s earnings per share forecasted by all analysts in year t by accurate earnings per share. The window is adopted during the annual report release at year t and before 3–6 months the next year annual report release t + 1.
VOLA (%)	Divergence of opinion around annual report release which is computed as excess turnover volatility, calculated as firm’s excess return volatility over the 2-day period after the annual report release to post 31 days of annual report. Excess turnover volatility is computed as the difference between firm level turnover and market level turnover.
RETVOL (%)	Divergence of opinion around annual report release. It is computed as the standard deviation of excess return during 2^nd-day following annual report release and post 31-day of release.
SIZE	Firm size: the natural logarithm of total asset value to control for size effect.
DE	Leverage ratio: denoted as debt to equity.
BM	Book-to-market ratio.
REGROW (%)	Growth rate of firm value.
LIQU	Liquidity around the annual report release level that is calculated as the average value of turnover ratio during the window [−1, +1].
LOGCT	Natural logarithm of annual report words account, to control for the documents lengths.
DIQUA	Disclosure quality, measured following Kim and Verrecchia (2001).
ROA (%)	Profitability indicator, measured as return on assets.
ANFOL	Analysts following, measured as the natural logarithm of one plus the analysts’ reports.
STDREV (%)	Standard deviation of stock return computed as standard deviation of return over the last 12 months ending three months after the fiscal year-end.
NUDP (%)	Positive words proportions: calculated as the positive words accounts divided by the total words account, then it times 100.
RTA (%)	Earnings uncertainty, calculated as standard deviation of the four quarterly return on assets.
Cash	Cash-holding: the total cash divided by the total asset.
SUE	Standardized unexpected earnings surprise: accurate earnings minus the predicted earnings divided by the stock prices.

Table 2. Summary statistics for annual report tone and divergence of opinion.

Variable	Obs	Mean	Std.Dev.	Min	Max
PTone (%)	18323	2.078	1.118	−0.801	3.943
NTone (%)	18323	1.631	0.276	0.991	2.178
DISP	11686	0.328	0.391	0.013	1.554
VOLA (%)	18323	1.415	1.095	0.139	4.184
RETVOL (%)	18323	2.935	0.917	1.134	4.727
SIZE	18323	22.038	1.179	19.731	24.551
BM	18323	0.606	0.240	0.119	1.018
DE	18323	0.448	0.197	0.060	0.785
LIQU (%)	18323	2.659	2.223	0.178	8.498
LOGCT	18323	10.986	0.266	10.229	11.471
REGROW (%)	18323	1.984	0.987	0.877	4.582
ANFOL	11125	2.578	1.028	0.693	4.927
STDRET (%)	18323	13.050	5.457	4.206	26.847
DIQUA	18323	0.459	0.187	0.091	1.012
ROA (%)	18323	4.212	4.167	−13.529	12.598
NUDP (%)	18323	2.560	0.677	1.279	3.988
F.Cash	15091	0.195	0.132	0.015	0.520
F.RTA (%)	15091	1.947	1.444	0.118	5.547
F.SUE	15091	−1.323	1.919	−14.641	0.851

Table 3. Negative annual report tone and divergence of opinion.

	(1)	(2)	(3)	(4)	(5)	(6)
VARIABLES	DISP	DISP	VOLA	VOLA	RETVOL	RETVOL
NTone	0.270***	0.296***	0.160***	0.068**	0.151***	0.058*
	(5.89)	(5.69)	(6.04)	(2.27)	(5.80)	(1.92)
NUDP		−0.084***		−0.033***		−0.053***
		(−3.85)		(−2.72)		(−4.22)
SIZE		−0.103***		−0.238***		−0.267***
		(−6.09)		(−26.89)		(−28.67)
BM		0.255**		0.326***		0.417***
		(1.97)		(4.34)		(5.52)
DE		0.340***		0.214***		0.190***
		(3.79)		(4.93)		(4.06)
REGROW		0.103***		−0.040**		−0.032**
		(3.89)		(−2.52)		(−2.04)
LIQU		−0.005		0.048***		0.037***
		(−0.98)		(13.62)		(10.66)
LOGCT		0.174***		0.131***		0.087**
		(2.65)		(3.38)		(2.17)
DIQUA		−0.066		0.023		−0.000
		(−1.28)		(0.63)		(−0.00)
ROA		−0.069***		−0.013***		−0.015***
		(−17.71)		(−7.62)		(−8.16)
ANFOL		−0.025
		(−1.50)
STDRET				0.006***		0.005***
				(3.49)		(3.38)
Constant	−0.165	0.257	0.465***	3.991***	0.649***	5.281***
	(−0.82)	(0.34)	(3.37)	(9.78)	(4.36)	(12.44)
Observations	11,346	11,125	18,323	18,323	18,323	18,323
R-squared	0.122	0.273	0.110	0.352	0.108	0.361
Number of Firms	2,260	2,225	2,732	2,732	2,732	2,732
Control for Year	Yes	Yes	Yes	Yes	Yes	Yes
Control for Industry	Yes	Yes	Yes	Yes	Yes	Yes

This Table shows the effects of negative annual report tone (NTone), classified by NTUSD, on the divergence of opinion, measured as dispersion of analyst forecast, from Column (1) to Column (2), measured as turnover ratio based divergence of opinion, from Column (3) to Column (4). We control for year and firm fixed effects. T-statistics in parentheses ***p < 0.01, **p < 0.05, *p < 0.1.

Table 4. Positive annual report tone and divergence of opinion.

	(1)	(2)	(3)	(4)	(5)	(6)
VARIABLES	DISP	DISP	VOLA	VOLA	RETVOL	RETVOL
PTone	−0.106***	−0.065***	−0.026***	−0.018***	−0.036***	−0.027***
	(−8.15)	(−5.43)	(−3.73)	(−2.92)	(−4.96)	(−4.02)
SIZE		−0.108***		−0.239***		−0.267***
		(−6.37)		(−26.99)		(−28.54)
BM		0.261**		0.328***		0.417***
		(2.02)		(4.37)		(5.52)
DE		0.332***		0.213***		0.188***
		(3.70)		(4.90)		(4.02)
REGROW		0.104***		−0.040**		−0.032**
		(3.91)		(−2.50)		(−2.04)
LIQU		−0.005		0.048***		0.037***
		(−0.96)		(13.59)		(10.63)
LOGCT		0.101*		0.127***		0.104***
		(1.67)		(3.56)		(2.82)
DIQUA		−0.065		0.023		0.001
		(−1.26)		(0.64)		(0.01)
ROA		−0.069***		−0.013***		−0.015***
		(−17.78)		(−7.63)		(−8.12)
ANFOL		−0.024
		(−1.44)
STDRET				0.006***		0.005***
				(3.50)		(3.32)
Constant	0.508***	1.529**	0.782***	4.108***	0.972***	5.114***
	(2.69)	(2.37)	(5.93)	(11.95)	(6.84)	(14.16)
Observations	11,346	11,125	18,323	18,323	18,323	18,323
R-squared	0.124	0.273	0.104	0.352	0.106	0.359
Number of Firms	2,260	2,225	2,732	2,732	2,732	2,732
Control for Year	Yes	Yes	Yes	Yes	Yes	Yes
Control for Industry	Yes	Yes	Yes	Yes	Yes	Yes

This Table shows the effects of positive annual report tone (PTone), classified by NTUSD, on the divergence of opinion, measured as dispersion of analyst forecast, from Column (1) to Column (2), measured as turnover ratio based divergence of opinion, from Column (3) to Column (4). We control for year and firm fixed effects. T-statistics in parentheses ***p < 0.01, **p < 0.05, *p < 0.1.

Table 5. Considerations of MD&A tone.

	(1)	(2)	(3)	(4)	(5)	(6)
VARIABLES	DISP	VOLA	RETVOL	DISP	VOLA	RETVOL
MDAPTone				−0.025***	−0.006	−0.012**
				(−2.74)	(−0.94)	(−2.02)
PTone				−0.048***	−0.018**	−0.024***
				(−3.25)	(−2.19)	(−2.87)
MDANTone	0.130***	0.011	0.020
	(3.11)	(0.87)	(1.33)
NTone	0.217***	0.062*	0.060*
	(3.45)	(1.71)	(1.65)
Constant	−0.835	4.177***	5.578***	0.507	4.378***	5.593***
	(−0.92)	(7.98)	(10.44)	(0.65)	(9.79)	(12.26)
Observations	8,387	13,443	13,443	8,387	13,443	13,443
R-squared	0.262	0.294	0.323	0.255	0.295	0.323
Number of Firms	1,734	2,052	2,052	1,734	2,052	2,052
Control variables	Yes	Yes	Yes	Yes	Yes	Yes
Control for Year	Yes	Yes	Yes	Yes	Yes	Yes
Control for Firm	Yes	Yes	Yes	Yes	Yes	Yes

This Table shows the effects of positive MD&A tone on investors divergence of opinion. From Column (1) to Column (3), we estimate negative MD&A tone effects. From Column (4) to Column (6), we estimate positive MD&A tone effects. t-statistics in parentheses. ***p < 0.01, **p < 0.05, *p < 0.1.

Table 6. Considerations of future uncertainty, future cash-flow, and future earnings surprises.

	(1)	(2)	(3)	(4)	(5)	(6)
VARIABLES	DISP	VOLA	RETVOL	DISP	VOLA	RETVOL
PTone				−0.072***	−0.016**	−0.027***
				(−6.02)	(−2.40)	(−3.75)
NTone	0.296***	0.064**	0.045
	(5.69)	(2.06)	(1.46)
F.RTA	0.026**	−0.001	−0.025***	0.026**	−0.003	−0.025***
	(2.23)	(−0.26)	(−4.49)	(2.26)	(−0.59)	(−4.51)
F.Cash	0.046	−0.011	−0.090	0.026	0.000	−0.089
	(0.54)	(−0.20)	(−1.53)	(0.31)	(0.01)	(−1.51)
F.SUE	−0.055***	−0.007*	−0.014***	−0.037***	−0.008**	−0.014***
	(−5.03)	(−1.80)	(−3.77)	(−3.77)	(−2.22)	(−3.75)
Constant	−0.018	3.795***	5.336***	1.727***	4.122***	5.046***
	(−0.02)	(8.35)	(11.71)	(2.70)	(10.85)	(12.82)
Observations	11,344	15,091	15,091	11,344	15,091	15,091
R-squared	0.065	0.139	0.482	0.362	0.133	0.482
Number of Firms	2,259	2,538	2,538	2,259	2,538	2,538
Control variables	Yes	Yes	Yes	Yes	Yes	Yes
Control for Year	Yes	Yes	Yes	Yes	Yes	Yes
Control for Firm	Yes	Yes	Yes	Yes	Yes	Yes

This table shows the effects of positive annual report tone (from Column (1) to Column (2)) and negative annual report tone (from Column (3) to Column (4)) on the divergence of opinion after taking into considerations of future earnings surprises and realized cash-flow. t-statistics in parentheses ***p < 0.01, **p < 0.05, *p < 0.1.

Table 7. Annual report tone, classified by LM (2011) words list, and divergence of opinion.

	(1)	(2)	(3)	(4)	(5)	(6)
VARIABLES	DISP	VOLA	RETVOL	DISP	VOLA	RETVOL
PTone_LM	−0.095**	−0.057**	−0.046*
	(−2.37)	(−2.43)	(−1.93)
NTone_LM				0.127***	0.067***	0.057**
				(3.07)	(2.71)	(2.26)
SIZE	−0.096***	−0.236***	−0.265***	−0.096***	−0.237***	−0.265***
	(−5.70)	(−26.52)	(−28.30)	(−5.65)	(−26.48)	(−28.24)
BM	0.252*	0.320***	0.411***	0.245*	0.317***	0.407***
	(1.93)	(4.27)	(5.44)	(1.88)	(4.21)	(5.38)
DE	0.348***	0.216***	0.195***	0.342***	0.211***	0.190***
	(3.86)	(4.96)	(4.17)	(3.80)	(4.87)	(4.06)
REGROW	0.104***	−0.040**	−0.032**	0.103***	−0.042***	−0.034**
	(3.92)	(−2.51)	(−2.00)	(3.86)	(−2.62)	(−2.11)
LIQU	−0.006	0.048***	0.037***	−0.005	0.048***	0.037***
	(−1.06)	(13.54)	(10.56)	(−1.06)	(13.61)	(10.59)
LOGCT	0.112*	0.138***	0.106***	0.098	0.127***	0.092**
	(1.72)	(3.71)	(2.74)	(1.51)	(3.43)	(2.42)
DIQUA	−0.070	0.021	−0.004	−0.070	0.022	−0.003
	(−1.35)	(0.57)	(−0.11)	(−1.36)	(0.59)	(−0.08)
ROA	−0.070***	−0.013***	−0.016***	−0.070***	−0.013***	−0.015***
	(−17.80)	(−7.95)	(−8.54)	(−17.81)	(−7.76)	(−8.36)
ANFOL	−0.033**			−0.031*
	(−1.97)			(−1.83)
STD_RET		0.005***	0.005***	−0.096***	−0.237***	−0.265***
		(3.34)	(3.17)	(−5.65)	(−26.48)	(−28.24)
NUDP_LM				−0.251***	−0.193***	−0.187***
				(−2.66)	(−3.57)	(−3.28)
Constant	0.853	3.794***	4.907***	1.054	4.014***	5.146***
	(1.16)	(9.75)	(12.07)	(1.41)	(10.25)	(12.68)
Observations	13,228	18,323	18,323	13,228	18,323	18,323
R-squared	0.274	0.350	0.356	0.274	0.352	0.357
Number of Firms	2,538	2,732	2,732	2,538	2,732	2,732
Control for Year	Yes	Yes	Yes	Yes	Yes	Yes
Control for Firm	Yes	Yes	Yes	Yes	Yes	Yes

This Table shows the effects of annual report tone, classified by LM (2011) words list, on divergence of opinion. From Column (1) to Column (3)/Column (4) to Column (6), we measure negative/positive annual report tone effects. t-statistics in parentheses. ***p < 0.01, **p < 0.05, *p < 0.1.

Kim, O., & Verrecchia, R. E. (2001). The relation among disclosure, returns, and trading volume information. The Accounting Review, 76(4), 633–654. https://doi.org/10.2308/accr.2001.76.4.633

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