The President's Letter to Stockholders: A New Look

6 Pages Posted: 23 Oct 2012 Last revised: 25 Oct 2012

See all articles by Dennis McConnell

Dennis McConnell

Independent

John A. Haslem

University of Maryland - Robert H. Smith School of Business; University of Maryland - Robert H. Smith School of Business

Virginia Gibson

Independent

Date Written: October 22, 2012

Abstract

Clearly, an analyst cannot rely exclusively on the president's letter to forecast a company's stock price performance. However, automatic dismissal of the president's letter may result in the loss of important signals. Presidents of high-performing companies tend to expect gains, and their letters convey those expectations. Presidents of low performers tend to discuss neither gains nor losses. Furthermore, mention of imminent losses is associated with subsequent stock price declines, whereas expressions of confidence tend to be associated with subsequent increases in stock price.

The results are encouraging, but further analysis is needed before generalizations may be made. The sample used in this analysis was intentionally composed of two extremely different groups. If differences had not been found in this sample, it is unlikely that they would be found anywhere. This study thus represents a preliminary analysis. Further analysis is required to determine whether the variables that differentiate groups can be used generally to predict individual company stock performance.

Two other limitations to the present study should also be noted. First, the firms examined were drawn from a cross-section of industries. Confounding variables might be controlled by performing a similar analysis within a single industry or examining individual firms over several consecutive years. Second, firms were selected without regard to past performance. The form and content of the president's letter may be conditioned by operating results in previous years.

Suggested Citation

McConnell, Dennis and Haslem, John A. and Haslem, John A. and Gibson, Virginia, The President's Letter to Stockholders: A New Look (October 22, 2012). Financial Analysts Journal, Vol. 42, No. 5, pp. 66-70, September/October 1986, Available at SSRN: https://ssrn.com/abstract=2165369

Dennis McConnell

Independent ( email )

John A. Haslem (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742
United States
202-387 2025 (Phone)

University of Maryland - Robert H. Smith School of Business ( email )

5901 MacArthur Blvd NW 124
Washington, DC DC 20016
United States
202-236 3172 (Phone)

Virginia Gibson

Independent

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