How Managers Communicate about Capital Budgeting to Investors

40 Pages Posted: 15 Apr 2024 Last revised: 16 Dec 2024

See all articles by Robert H. Battalio

Robert H. Battalio

University of Notre Dame - Department of Finance

Tim Loughran

University of Notre Dame

Bill McDonald

University of Notre Dame - Mendoza College of Business - Department of Finance

Date Written: December 16, 2024

Abstract

We create a lexicon of 45 capital budgeting terms and document manager language usage in earnings conference calls during 2010-2020. Managers often use technical language like free cash flow, operating income, return on investment, and return on capital during conference calls. We substantiate the survey evidence of Graham and Harvey (2001) by demonstrating that managers frequently use concepts like payback period and ROI. Managers of large firms generating more positive financial performance tend to talk more about capital budgeting in earnings calls. We also find that managers mention the non-GAAP term EBITDA significantly more often when a company’s net income is negative.

Keywords: JEL codes: D82, D83, G14, G31, G32 Textual analysis, conference calls, capital budgeting, EBITDA, free cash flow, job transitions

JEL Classification: D82, D83, G14, G31, G32

Suggested Citation

Battalio, Robert H. and Loughran, Tim and McDonald, Bill, How Managers Communicate about Capital Budgeting to Investors (December 16, 2024). Available at SSRN: https://ssrn.com/abstract=4766530 or http://dx.doi.org/10.2139/ssrn.4766530

Robert H. Battalio

University of Notre Dame - Department of Finance ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States
574-631-9428 (Phone)
574-631-5255 (Fax)

Tim Loughran (Contact Author)

University of Notre Dame ( email )

Department of Finance
245 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-8432 (Phone)
574-631-5255 (Fax)

Bill McDonald

University of Notre Dame - Mendoza College of Business - Department of Finance ( email )

University of Notre Dame
Notre Dame, IN 46556-0399
United States
574-274-2333 (Phone)

HOME PAGE: http://sites.nd.edu/bill-mcdonald

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