Automatic Summaries of Earnings Releases: Attributes and Effects on Investors’ Judgments

61 Pages Posted: 25 Jan 2017 Last revised: 4 May 2018

See all articles by Eddy Cardinaels

Eddy Cardinaels

Tilburg University - Tilburg University School of Economics and Management; KU Leuven

Stephan Hollander

Tilburg University - Tilburg School of Economics and Management

Brian J. White

University of Texas at Austin - Department of Accounting

Date Written: April 26, 2018

Abstract

Firms often include summaries with earnings releases. However, manager-generated summaries may be prone to strategic tone and content management compared to the disclosures they summarize. In contrast, computer algorithms can summarize large amounts of text without human intervention, and may provide useful summary information with less bias. We use multiple methods to provide evidence regarding the characteristics of automatic, algorithm-based summaries of earnings releases compared to summaries provided by managers. Results suggest that automatic summaries are generally less positively biased than management summaries, without sacrificing the extent to which the summaries capture relevant information. We then conduct an experiment to test whether these differing attributes of automatic and management summaries affect individual investors’ judgments. We find that investors who receive an earnings release accompanied by an automatic summary arrive at more conservative (i.e., lower) valuation judgments, and are more confident in those judgments. Overall, our results suggest that summaries affect investors’ judgments, but that such effects can differ for management and automatic summaries.

Keywords: Management Summary, Automatic Summary, Disclosure, Investor Judgment

Suggested Citation

Cardinaels, Eddy and Hollander, Stephan and White, Brian J., Automatic Summaries of Earnings Releases: Attributes and Effects on Investors’ Judgments (April 26, 2018). Available at SSRN: https://ssrn.com/abstract=2904384 or http://dx.doi.org/10.2139/ssrn.2904384

Eddy Cardinaels

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Warandelaan 2
Tilburg, 5000 LE
Netherlands
+31 134668231 (Phone)

HOME PAGE: http://www.tilburguniversity.edu/webwijs/show/?uid=e.cardinaels

KU Leuven ( email )

Naamsestraat 69
Leuven, B-3000
Belgium
+32 16326984 (Phone)

HOME PAGE: http://www.kuleuven.be/wieiswie/nl/person/00013472

Stephan Hollander

Tilburg University - Tilburg School of Economics and Management ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands
+31 13 466 8288 (Phone)
+31 13 466 8001 (Fax)

HOME PAGE: http://www.uvt.nl/people/s.hollander

Brian J. White (Contact Author)

University of Texas at Austin - Department of Accounting ( email )

Austin, TX 78712
United States

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