Content area
Full Text
Abstract
Investors have started relying on advanced techniques such as textual analysis to understand the inherent complexities of annual reports. It is believed that annual reports present implicit information of the management that can be invaluable for investors and other stakeholders. Using the NIFTY 50 companies as our sample, we examine the annual reports for the year 2018-19 and analyze the scope and presence of sentiment and readability differentials across various sections of the annual reports covering the Chairman's Speech, the Director's Report, Management Discussion & Analysis (MD&A) and Notes to Accounts. Even though these sections are given in the same annual report, their readability and sentiment scores vary across different sections. Chairman's speech is the most readable and has the highest positive sentiment score. In contrast, Director's Report, MD&A, and Notes to Account have increasing difficulty in readability scores and relatively lower sentiment scores. The implications for practitioners and investors are discussed.
Keywords: Readability score, annual reports, sentiment analysis, NIFTY 50
1.Introduction
The existing literature in accounting investigates the data from annual reports based on earnings-related information, growth prospects, and overall financial performance. Most of these investigations are based on quantitative analysis using numerical data. However, recently the textual analysis usage has been increasing for finding out the intricacies of the qualitative data (Ahmed et al., 2013; Li, 2008; Li, 2009; Lehavy et al.; 2011; Miller, 2010). The minimal dependence on textual analysis in accounting literature is mainly due to difficulty in accessing annual reports or the complexities of converting numerical data into software usable text format. We aim to overcome these limitations and examine Nifty 50 annual reports using textual analysis and examine whether there is any sectional differential in readability and sentiment scores within annual reports.
The textual contents reported by the companies include Chairman's speech, Director's report, MD&A, notes to accounts, earnings conference calls, and other press release documents. Prior literature in the field of accounting information systems focused primarily on the readability of the textual reports. In the past decade, sentiment analysis has played a considerable role in text mining from the annual reports. Managers might use more positive sentiments to signal a prosperous future or hide the current poor performance. The firm's financial results cannot be altered. However,...