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TO MAKE PROFITABLE INVESTMENT DECISIONS, INVESTORS NEED TO ASSESS THE FINANCIAL FUTURE OF FIRMS. DUE TO INVESTORS’ LACK OF INTERNAL INFORMATION ABOUT THE FIRMS’ FUTURE PROSPECTS, THEY OFTEN HAVE TO RELY ON MANAGERS’ VERBAL STATEMENTS FOR THIS TASK. HOWEVER, AS MANAGERS MIGHT HAVE AN INCENTIVE TO PRESENT POSITIVELY BIASED INFORMATION, THE VALUE OF THEIR STATEMENTS FOR INVESTORS IS NOT CLEAR.
IN THIS REPORT, WE SHOW HOW TEXTUAL ANALYSIS TOOLS CAN BE USED TO ASSESS THE VALUE OF MANAGERS’ VERBAL STATEMENTS DURING EARNINGS CONFERENCE CALLS FOR INVESTORS. WE FIND THAT IN PARTICULAR MANAGERS’ NEGATIVE STATEMENTS SIGNI FICANTLY PREDICT LOWER FUTURE EARNINGS.
A common element of market structure analysis is the spatial representation of firms’ competitive positions on maps. Such maps typically capture static snapshots in time. Yet, competitive positions tend to change. Embedded in such changes are firms’ trajectories, that is, the series of changes in firms’ positions over time relative to all other firms in a market. Identifying these trajectories contributes to market structure analysis by providing a forward-looking perspective on competition, revealing firms’ (re)positioning strategies and indicating strategy effectiveness. To unlock these insights, we propose EvoMap, a novel dynamic mapping framework that identifies firms’ trajectories from high-frequency and potentially noisy data. We validate EvoMap via extensive simulations and apply it empirically to study the trajectories of more than 1,000 publicly listed firms over 20 years. We find substantial changes in several firms’ positioning strategies, including Apple, Walmart, and Capital One. Because EvoMap accommodates a wide range of mapping methods, analysts can easily apply it in other empirical settings and to data from various sources.