Managerial Sentiment and Corporate Liquidity Hoarding: Evidence from the Special Case of Banking

Abstract

We analyze how managerial sentiment embedded in accounting statements affects corporate liquidity hoarding. We choose banks as our empirical setting due to superior detailed accounting data, a comprehensive research-based liquidity hoarding measure, and avoidance of interindustry differences in liquidity needs. We derive managerial sentiment from negative and positive tones in annual reports (10-K) language. We find more negative managerial sentiment results in more liquidity hoarding, consistent with our hypothesis. Further analysis confirms that findings incorporate bank volition rather than being driven only by customers. We also address endogeneity using exogenous weather conditions as instruments. We finally derive potential policy implications.

Keywords: bank sentiment, liquidity hoarding, textual analysis, bank disclosure

JEL Classification: G21, G02, D03