What are the topics discussed in earnings press releases when the CEO compensation depends on the stock price?
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- Earnings press releases serve as a set of information for stakeholders and investors. Prior literature has shown that equity-based compensations lead executives to manipulate linguistic components, such as the tone, to enhance the firm’s perspective in the eyes of investors. In this paper, we adopt a new approach compared to previous research to determine the thematic content of earnings press releases. We use a topic modeling method (LDA) to identify the topics discussed and analyze whether the discussion of these topics can be potentially impacted by managerial compensation. We identified 6 topics, using a sample of 27,059 earnings press releases published on the SEC website between 2004 and 2012, as well as their corresponding financial data. Next, we show that managerial delta can explain the discussion of certain topics through earnings press releases. We observe that the delta has a positive and significant impact on the discussion of topics related to Finance and Insurance. In contrast, we note a negative impact on topics related to Risk, R & D, Social and Environment. Overall, this paper provides information on the topics discussed by opportunistic managers in earnings press releases.