Is the Optimism in shareholder letters associated with future financial performance? - A study of sincerity in shareholder letters of U.S. banks issued prior to and in the outbreak of the financial crisis

Abstract

In this study we examine whether or not optimistic tone in shareholder letters is sincere. By replicating the methodology of Patelli and Pedrini (J Bus Ethics 124:19–34, 2014) we contrast impression management theory with communicative action theory, and conduct text analysis of shareholder letters through the linguistic software program DICTION. Furthermore, we extend Patelli and Pedrini’s (J Bus Ethics 124:19–34, 2014) study by capturing and comparing two different macroeconomic contexts in a large sample of publicly listed U.S. banks. In contrast to Patelli and Pedrini (J Bus Ethics 124:19–34, 2014), who found support for sincere communication by Fortune 500 firms in the outbreak of the global financial crisis, we find that optimistic tone was not positively associated with future financial performance neither prior to nor in the outbreak of the financial crisis. Thus with our results, we contribute to the academic field of impression management. Moreover, our study is of value to academics and other users of shareholder letters, which should question the sincerity of information communicated. However, as our study is limited to banks that survived the financial crisis, consideration of the survival bias should be taken. If accessibility of bankrupt banks’ annual reports is improved, a suggestion for further research could be to include these to test whether our results are supported.