Manager Sentiment Bias and Stock Returns: Evidence from China

This is the authors' abstract. We don't add key points for this paper.

Using textual analysis of Chinese listed firms from 2004 to 2017, we examine the role that managers’ sentiment plays in financial disclosures and its impact on firms’ future stock returns. We distinguish manager sentiment as either signal or noise according to its consistency with firm earnings. We find that good signal sentiment positively impacts stock returns, whereas bad signal sentiment and noisy sentiment that reflects overconfidence negatively impact stock returns. Further analysis shows that external supervision, internal control, and managers’ expertise contribute to improving the information quality of both signal and noisy sentiments, and the enactment of earnings forecast policy helps strengthen the signaling impact of manager sentiment.