Does Textual Information in Annual Reports Affect Analysts’ Forecast?

The decision relevance of annual reports has always been a major concern to the accounting profession. Previous studies that addressed this issue mainly focused on the information content of quantitative accounting data. However, as firms has included more and more textual information in their annual reports, the decision relevance of textual information merits formal investigation.his study attempts to investigate whether textual information in annual reports affects analysts’ forecast. We posit that analysts will adjust their earning forecast based on the degree of positive/negative sentiment as conveyed by the management through the textual information contained in annual reports. We also posit that analysts’ forecast will be less accurate if the positive/negative sentiment is more ambiguous, because the analysts will then face a more uncertain situation.pplying content analysis to measure the degree of positive/negative sentiment, we analyze the data of listed firm-years. We find that annual reports sentiment does affect analysts’ forecast. The analysts downwardly adjust their earning forecast to a larger degree when the sentiment conveyed by the annual reports is more negative. We also find that analysts’ forecast are less accurate if positive/negative sentiment is more ambiguous.