Narrative Innovation, Real Innovative Activities and Earnings Persistence: Evidence from Word2Vec

Posted: 15 Dec 2018

See all articles by Nan Hu

Nan Hu

Stevens Institute of Technology - School of Business

Ting Zhang

Xi'an Jiaotong University (XJTU) - School of Management

Xiaoyu Li

Xi'an Jiaotong University (XJTU) - School of Management

Date Written: September 30, 2018

Abstract

Whether the narrative innovation disclosure in financial report captures incremental useful information content beyond traditional real innovative activities (i.e., R&D intensity and patent)? To what extent the narrative innovation disclosure is related to real innovative activities? Is there any association between narrative innovation disclosure and earning persistence in the future? To investigate these research questions, we employ emerging text mining techniques to explore potential answers. Assisted with Chinese Natural Language Processing tool and a neural network algorithm termed as Word2Vec, we extract and analyze the narrative innovation disclosure from annual financial reports of listed companies in Chinese A-share market from 2007 to 2016. We find that (1) narrative innovation disclosure is positively related to the level of current real innovative activities; (2) narrative innovation disclosure is positively related to current earnings; (3) narrative innovation disclosure relates positively to future real innovation activities; (4) narrative innovation disclosure also relates positively to future earnings persistence. From the perspective of large-scale text analysis, we provide novel empirical evidence for the information usefulness of narrative innovation in corporate disclosure.

Keywords: Narrative innovation, Real innovative activities, Earnings persistence, Text analysis, Artificial intelligence

JEL Classification: M41; G14; O31; D82; D21

Suggested Citation

Hu, Nan and Zhang, Ting and Li, Xiaoyu, Narrative Innovation, Real Innovative Activities and Earnings Persistence: Evidence from Word2Vec (September 30, 2018). Available at SSRN: https://ssrn.com/abstract=3289221

Nan Hu

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

Ting Zhang (Contact Author)

Xi'an Jiaotong University (XJTU) - School of Management ( email )

28,Xianning West Road
Xi'an, Shaanxi 710049
China

Xiaoyu Li

Xi'an Jiaotong University (XJTU) - School of Management ( email )

28,Xianning West Road
Xi'an, Shaanxi 710049
China

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