The effects of manager sentiment in financial disclosure: Perspectives of operational efficiency and market reaction

• Published in: Finance research letters 2024-06, Vol.64, p.105425, Article 105425
• Main Authors: Wang, Chunlan, Xin, Jianxuan, Sun, Fangfang, Shi, Yan, Du, Yuxuan
• Format: Article
• Language: English
• Subjects: Analyst forecasts dispersion; Managerial optimism; MD&A tone; Operational efficiency; Stock return
• ISSN: 1544-6123; 1544-6131
• DOI: 10.1016/j.frl.2024.105425

•We construct a measure of managerial optimism using textual and nonparametric estimation.•We explore the impact of managerial sentiment on company operational efficiency.•Managerial optimism positively influences stock price returns over the subsequent year.•This research offers practical implications for management at the firm-level. This study constructs a measure of managerial optimism using textual and nonparametric estimation methods, exploring its impact on company operational efficiency and market reactions. Findings indicate that managerial optimism positively influences stock price returns over the subsequent year by enhancing internal operational efficiency and reducing analyst forecast dispersion, with a more pronounced effect in state-owned enterprises. Utilizing information from the MD&A (Manager Discussion and Analysis) section of annual reports, this research demonstrates the role of managerial optimism in company operations and market reactions, offering empirical evidence for corporate behavioral finance research and practical implications for management practice.