What the CEO says: The Incremental Information Content in the Language of CEO letters

Sammanfattning: We investigate if the language of CEO letters on the Stockholm Stock Exchange contains information about the future performance of the firm. We conduct a quantitative content analysis to classify 1,500 CEO letters and a total of 1.8 million words into scores based on the sentiment of each letter. Our main findings are that the sentiment in CEO letters contains information about future operating performance and future firm valuation. These results suggest that the CEO uses language in the CEO letters to provide incremental information beyond quantitative information in the annual report. This paper contributes to the literature on narrative disclosures by demonstrating empirical evidence of information content of CEO letters on the Stockholm Stock Exchange. Furthermore, we add to the limited literature on quantitative sentiment analysis of corporate disclosures in a non-US setting.