Transformations  in
Business & Economics

THE EFFECT OF MANAGERIAL SENTIMENT ON MARKET-TO-BOOK RATIO
Renata Myskova, Petr Hajek

ABSTRACT. To be able to properly evaluate the financial performance of the company, in addition to financial statements it is also necessary to provide all stakeholders with further details. In this context, corporate management has become increasingly focused on improving the structure and volume of the information contained in annual reports in order to strengthen the company's position among all stakeholders. This article aims to assess the impact of the information published in annual reports of companies on the market value of the shares in the context of the financial value of the enterprise. Considering that from the investor's perspective an investment is assessed in relation to the intrinsic value of the share, a balance model that uses historical prices while being based on information contained in the financial statements was selected. We find inverse effects for negative and positive word lists. The effect of a positive sentiment was perceived cautiously and negatively particularly with regard to positive multi-words, whereas a high frequency of negative single words was accepted positively and, thus, led to a higher market-to-book ratio. Notably, we show that net optimism in annual reports is perceived positively by stakeholders.

KEYWORDS: managerial sentiment, stock market, market-to-book-ratio, dividend policy, fundamental analyses, bag-of-words.

JEL classification: G32, D81, M21, C15.