Abstract
Purpose – This paper investigates the association between the sentiment expressed in financial reports, specifically positive and negative sentiment, and firm performance. This study attempts to examine the implementation of a textual analysis approach of NYSE-listed firms’ annual reports to capture managerial sentiment and evaluate its relationship with firm profitability. The underlying premise is that the optimism or pessimism conveyed by managers through corporate financial reporting may reflect firms’ financial performance. Therefore, this research work seeks to address the following research question: “To what extent is the sentiment of financial reports, particularly positive and negative sentiment, associated with firm performance?”
Design/methodology/approach – Financial reports of all the firms that are listed in the New York Stock Exchange are analyzed using a textual analysis methodology, and this procedure generates the quantitative measures of positive and negative sentiment. The resulting textual-analysis database is subsequently merged with financial data obtained from the Orbis database, and that include performance ratios as well as the control variables of the study. The final dataset comprises 20,162 firm-year observations for the period 2000-2024. In addition, R software is used for the regression analyses of the final dataset. Finally, all continuous financial variables are winsorized at the 1st and 99th percentiles to mitigate the impact of extreme values.
Findings – The empirical results indicate a significant association between textual sentiment of financial reports of NYSE-listed firms and firm performance. Particularly, positive sentiment has a positive and significant relation with firm performance, whereas negative sentiment has a negative and significant association with firm performance. According to the findings of the study, the sentiment disclosure by managers in financial reports is significantly associated with firm profitability.
Research limitations/implications – This research work sheds light exclusively on U.S. firms that are listed on the New York Stock Exchange (NYSE). Thus, future research could further examine the association between textual information and firm performance across different institutional and economic settings.
Practical implications – Examining the association between textual characteristics of U.S. financial reports and firm performance provides users of financial reporting information- managers, investors, analysts, and auditors-with a deeper understanding of the informational value of corporate disclosures.
Originality/value – This paper contributes to the existing research by combining quantitative financial ratios with qualitative information from the text of financial reports. Therefore, the findings of this study highlight the importance of textual information to interpret firm performance. Moreover, this research work uses a large and up-to-date sample to provide empirical evidence over an extensive and recent horizon.

JEL classification: M41, G30.