Abstract
We analyze the investor reaction to the sentiment of the CEO speech at the Annual General Meeting (AGM). As the AGM is typically preceded by several information disclosures, the CEO speech may be expected to contribute only marginally to investors’ decision making. Surprisingly, however, we find that based on the transcripts of 338 CEO speeches of German corporates between 2008 and 2016, their sentiment is significantly related to abnormal stock returns and trading volume following the AGM. To measure sentiment, we create a finance-specific German dictionary based on Loughran and McDonald (2011) and test it extensively. Applying it to CEO speeches, we observe that both the tonality (i.e. positivity relative to negativity) and the degree of uncertainty of a speech are positively associated with the abnormal returns following the AGM. At the same time, tonality corresponds with a lower trading volume in a short time window surrounding the speech. The market hence seems to perceive the sentiment of CEO speeches at AGMs of German companies as a valuable indicator of future firm performance.
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