Stock Returns and Future Tense Language in 10-K Reports

Karapandza, Rasa

doi:10.2139/ssrn.1910011

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Stock Returns and Future Tense Language in 10-K Reports

Journal of Banking and Finance, Volume 71, October 2016, Pages 50–61

46 Pages Posted: 15 Aug 2011 Last revised: 8 Sep 2016

See all articles by Rasa Karapandza

Rasa Karapandza

EBS Universität für Wirtschaft und Recht - EBS Business School - Department of Finance and Accounting; New York University (NYU) - New York University, Abu Dhabi

Date Written: August 15, 2011

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.

Keywords: content analysis, promises, anomalies, asset pricing

JEL Classification: G11, G12, G14, D82, D83, M48, G3

Suggested Citation: Suggested Citation

Karapandza, Rasa, Stock Returns and Future Tense Language in 10-K Reports (August 15, 2011). Journal of Banking and Finance, Volume 71, October 2016, Pages 50–61, Available at SSRN: https://ssrn.com/abstract=1910011 or http://dx.doi.org/10.2139/ssrn.1910011