When Good News are Bad News: Finding Value Relevant Information in the Sentiment of Annual Reports

Abstract: The qualitative aspects of corporate disclosures are rarely considered by stakeholders, meaning that a vast amount of potentially value relevant information goes to "waste". We study the sentiment contained in corporate disclosures, investigating the value relevance of its qualitative aspects to determine the potential value for stakeholders in considering this information. This is done by calculating the net positive sentiment in Swedish large-cap firms' annual reports during the period 2008 to 2020 and relating this to future firm performance. Our results show that net positive sentiment in the annual reports is significantly negatively related to future firm performance. This indicates that the qualitative information in Swedish large-cap firms' annual reports is value relevant and could be used by stakeholders to further reduce information asymmetry to managers.