Stock Returns and Future Tense Language in 10-K Reports
46 Pages Posted: 15 Aug 2011 Last revised: 8 Sep 2016
Date Written: August 15, 2011
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