Description
Title: The Relationship between the Company’s Value and the Tone of the Risk-Related Narratives: The Portugal Case
Abstract: The purpose of the current study is to determine how the narrative style of risk reporting affects a company’s market value. The study makes use of a sample of 34 non-financial Portuguese companies whose shares are traded on the Euronext Lisbon stock market. Using the software DICTION 7 (Digitext, Inc., Austin, TX, USA) to retrieve the speech tone, the paper performs an automated content analysis of the risk reporting narratives included in the risk and risk management sections of the annual reports for 2018. The main results show that the tone category “activity” is negatively correlated with the market value of the company. This finding demonstrates that risk information that contains traces of overconfidence, narcissistic self-confidence, and heroic leadership is mispriced by investors. By examining the previously unstudied economic incentives of the tone of risk reporting narratives, the current study expands on prior research. Findings are pertinent for managers to strategically manage their risk communication tactics and reap the rewards of doing so as well as for investors to support their decision-making processes. The automated algorithm provided by DICTION ensures the content analysis’s reliability, so research setting limitations do not compromise the generalizability of findings. The population of the Portuguese non-finance listed companies is represented by the sample that was used.
Keywords: risk reporting; risk disclosure; impression management
Paper Quality: SCOPUS / Web of Science Level Research Paper
Subject: Economics
Writer Experience: 20+ Years
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