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Analysis of the Influence of the Sentiment in CEO Letter on the Main Indicators of the PRC Companies

Student: Zaychikov Kirill

Supervisor: Elena Fedorova

Faculty: Faculty of Economic Sciences

Educational Programme: Economics (Bachelor)

Year of Graduation: 2017

This work is aimed at making an empirical analysis of the impact of the sentiment of the CEO Letter on the financial performance of Chinese companies. The relevance of the work is confirmed by the growing investment attractiveness of the PRC, as well as the importance of the noticed document for investors. The authors selected 55 Chinese companies that met the stated criteria. The authors uploaded financial figures from the Bloomberg database, the texts of letters were manually cut from the annual reports downloaded from the websites of the companies. A textual analysis of the contents of the CEO Letter was carried out using the "bag of words" methodology using the «Loughran and McDonald» dictionary. The sentiment of the text is defined by the authors as the difference between positive and negative colored words in relation to the total number of sentimental words. Linear regressions were carried out, as well as the Probit model was made, the above-mentioned dependencies were analyzed. As a result, the authors discovered the existing links between the sentiment of the text and the return on the company's common equity (ROCE), as well as the effect of the sentiment of CEO Letter on the amount of dividends paid by the company. The dependence between the decision on the payment of dividends and the tone of the annual management appeal to shareholders was not established.

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