The Linguistic Properties of Award-winning Annual Reports

76 Pages Posted: 13 May 2020

See all articles by Jacqueline Gagnon

Jacqueline Gagnon

University of Regina

Steven Young

Lancaster University - Department of Accounting and Finance

Paulo Alves

Universidade Católica Portuguesa, Católica Porto Business School; Lancaster University Management School - ICRA

Date Written: April 14, 2020

Abstract

We develop and test a model of high quality annual report discourse. The model is trained and evaluated on reports published between 2007 and 2018 by London Stock Exchange-listed firms shortlisted for an award by corporate reporting experts. We use methods from computational linguistics to identify an initial set of 19 features that distinguish quality according to what management say (i.e.: content) and how they say it (i.e.: language structure). We supplement these features with popular bag-of words proxies drawn from extant research (document length, reading ease, net tone, forward-looking content, and uncertainty). Stepwise regression yields a parsimonious quality model comprising 10 features that suggest more strategy-related commentary, less focus on growth, and greater language accessibility that promotes cognitive processing (evidenced by more relevancy markers, greater connectivity, more exclusive forms of language, and fewer grammatical words). The model predicts over 70% of shortlisting cases in out-of-sample tests and outperforms a baseline model comprising popular bag-of-words features.

Keywords: annual report discourse, semantic annotation, corpus linguistics, bag-of-words, prediction model

JEL Classification: M40

Suggested Citation

Gagnon, Jacqui and Young, Steven and Alves, Paulo, The Linguistic Properties of Award-winning Annual Reports (April 14, 2020). Available at SSRN: https://ssrn.com/abstract=3575679 or http://dx.doi.org/10.2139/ssrn.3575679

Jacqui Gagnon

University of Regina ( email )

3737 Wascana Parkway
Regina, Saskatchewan S4S OA2 S4S 0A1
Canada

Steven Young (Contact Author)

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom
+441 5245-94242 (Phone)
+441 5248-47321 (Fax)

Paulo Alves

Universidade Católica Portuguesa, Católica Porto Business School ( email )

R. de Diogo Botelho, 1327
Porto, Porto 4169-005
Portugal

HOME PAGE: http://www.catolicabs.porto.ucp.pt/en/who-is/paulo-alves/1639

Lancaster University Management School - ICRA ( email )

Lancaster, Lancashire LA1 4YX
United Kingdom

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