Managerial Myopia and Investment Behavior -- Based on Text Mining and Machine Learning Technology

Posted: 30 Nov 2018

See all articles by Nan Hu

Nan Hu

Stevens Institute of Technology - School of Business

Fujing Xue

Xi'an Jiaotong University (XJTU)

Date Written: September 30, 2018

Abstract

This paper investigates the effects of managerial myopia on investment behaviors in China. We construct a new indicator to measure managerial myopia by text analysis and machine learning methods based on the management discussion and analysis (MD&A) in A-share listed company’s annual reports during 2007-2016. Our results indicate that the higher frequency of short-horizon vocabulary represents the higher degree of managerial myopia, which will decrease the company's R&D investment, the number of patents and inventions. Besides, the impact of managerial myopia on R&D investments is more concentrated on firms with a high degree of environmental uncertainty and high age of managers. And the relationship between managerial myopia and R&D investment is stronger among firms with low analyst coverage. Furthermore, we find that managerial myopia will also reduce the company's advertising expense and increase the real earnings management activity.

Keywords: Managerial Myopia; Investment Behavior; MD&A; Text Mining; Machine Learning (Word2Vec)

JEL Classification: M41; G31; D21

Suggested Citation

Hu, Nan and Xue, Fujing, Managerial Myopia and Investment Behavior -- Based on Text Mining and Machine Learning Technology (September 30, 2018). Available at SSRN: https://ssrn.com/abstract=3289200

Nan Hu

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

Fujing Xue (Contact Author)

Xi'an Jiaotong University (XJTU) ( email )

26 Xianning W Rd.
Xi'an Jiao Tong University
Xi'an, Shaanxi 710049
China

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