Framework uncovers emotional alignment in financial documents, indicating risk in large-cap firms.
Financial disclosure occurs through multiple channels with fundamentally different legal constraints. Mandatory SEC filings undergo extensive legal review under Sarbanes–Oxley Section 302, while the earnings call Q&A segments represent comparatively spontaneous communication protected by safe harbor provisions. This structural difference creates a natural experiment for detecting management of information asymmetry through emotional consistency analysis. This paper presents Cross-Document Emotion Consistency (CDEC), a framework measuring emotional alignment between Management’s Discussion and Analysis (MD&A) sections and earnings call Q&A using domain-adapted 28-dimensional emotion classification. The framework jointly analyzes MD&A and Q&A for cross-channel emotion alignment, linking 8-K filings as external event validation. Neither CDEC nor financial fundamentals alone achieve meaningful risk separation; their interaction does. The integrated framework achieves approximately twice the risk separation of the strongest 3-class sentiment baseline tested (27.4 percentage points vs. 14.6 pp for RoBERTa-based consistency and 8.7 pp for FinBERT), indicating that 28-dimensional emotion granularity captures disclosure risk not detected by standard sentiment classification. The Financial Health Indicator (FHI) achieves an out-of-sample Area Under the Curve (AUC) = 0.671, distinguishing firms likely to beat Standardized Unexpected Earnings (SUE) expectations (62.8% beat rate among large-cap sector-representative firms) from those likely to miss (35.4%). The framework serves as a risk-screening tool for due diligence, internal audit, and regulatory oversight among large-cap firms, identifying firms warranting scrutiny rather than generating trading signals.
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McCarthy et al. (2026) studied this question.
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