How Managers Communicate about Capital Budgeting to Investors

Abstract

We create a lexicon of 45 capital budgeting terms and document manager language usage in earnings conference calls during 2010-2020. 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. Finally, we find that companies that mention payback rather than net present value are smaller in size, have less R&D expenses, and are younger in age.

Keywords: JEL codes: D82, D83, G14, G31, G32 Textual analysis, conference calls, capital budgeting, EBITDA, payback

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