How Managers Communicate about Capital Budgeting to Investors
40 Pages Posted: 15 Apr 2024 Last revised: 16 Dec 2024
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: Suggested Citation
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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