CEO Overconfidence and Tone of Annual Report
I examine the impact of CEO overconfidence on the sentimental tones used by firms in the annual reports. Following Loughran & McDonald’s sentiment word list, the thesis investigates whether firms headed by overconfident CEOs tend to use more favorably or tend to avoid positive, strong, moderate, negative, uncertain, litigious, constraining and weak tones while filing 10-K reports. The thesis provides strong evidence of lesser instances of negative and strong tones in annual reports of the firms headed by overconfident CEOs and weak evidence of lesser instances of litigious tone. The thesis also provides strong evidence of firms headed by overconfident CEOs with higher levels of cash increasing the use of strong tone in annual reports, and more valued decreasing the use of litigious tone. Also, the results show weak evidence of firms headed by overconfident CEOs with higher capital expenditure increasing the use of negative tone and highly leveraged firms headed by overconfident CEOs decreasing the use of litigious tone.
overconfidence, tone, annual report, CEO, textual analysis, 10-K, negative tone, litigious tone, strong tone, strong modal words, strong modal verbs
Master of Science (M.Sc.)