Date of Award

Spring 2019

Degree Name

Bachelor of Science (BS)

Advisor(s)

Kevin Mirabile

Abstract

Executives and board members write yearly shareholder letters that serve as a summary of how a company performed over its most recent fiscal year. Therefore, letters should not present any information to the market that is not already known. My research looks into whether or not the market gleans new information from shareholder letters. If a stock experiences abnormal returns, either positive or negative, shortly after a shareholder letter was published, that could be a sign that the market picked up new information from the letter. In order to see if this is the case, we have collected a sample size of 117 shareholder letters from companies that are part of the S&P 500 Index. These letters are specifically reviewing fiscal year 2016 performance and have dates on them indicating when each letter was written. We have also collected 5, 10, and 15-day return data for each company and each company’s respective industry. It is important to note that the 5, 10, and 15-day time intervals are different for most companies as they typically write their letters on different dates. Running all 117 letters through a software program that scores each letter based on the use of positive words will allow us to then run a regression analysis between each letter’s positivity score and the respective returns for that company. Our findings show that the more positive a shareholder letter is, the worse a stock performs. The implications of these findings are that the market reacts unfavorably to companies that publish very positive and rosy shareholder letters. It therefore might be worthwhile to read a company’s shareholder letter before investing in the company.

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