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Deciphering the Influence of the Tone of Management Discussion and Analysis on Corporate Innovation: Integrating Textual Analysis

Author

Listed:
  • Qingyuan Wu

    (School of Economics and Management, Hanshan Normal University, Chaozhou, China.)

  • William A. Barnett

    (Department of Economics, University of Kansas, Lawrence, KS 66045, USA and Center for Financial Stability, New York City, NY, USA)

  • Xue Wang

    (Department of Economics, Emory University, Atlanta, GA, U.S. and Institute of Chinese Financial Studies, Southwestern University of Finance and Economics, Chengdu, China)

  • Junru Zhao

    (School of Business Administration, Guizhou University of Finance and Economics, Guiyang, Guizhou 550025, China.)

Abstract

How does Management's Discussion and Analysis (MD&A) sentiment tone affect corporate innovation? The influence mechanism is straight and very robust. To some extent, the positive sentiment tone, representing a psychological state, serves as an intermediary between macro or micro conditions and corporate innovation. This paper uses a machine learning method to measure the MD&A sentiment tone and get innovation indicators in a broader sense. The fix effect model shows that when the value of a firm's positive sentiment tone increases by 1 unit, its innovation increases by approximately 1.02 units. Eliminating industry and market effects, the exclusive sentiment tone information owned by the firm would still play a strong influence on innovation.

Suggested Citation

  • Qingyuan Wu & William A. Barnett & Xue Wang & Junru Zhao, 2024. "Deciphering the Influence of the Tone of Management Discussion and Analysis on Corporate Innovation: Integrating Textual Analysis," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 202417, University of Kansas, Department of Economics.
    • Handle: RePEc:kan:wpaper:202417
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    File URL: https://kuwpaper.ku.edu/2024Papers/202417.pdf
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