The IUP Journal of Applied Economics
The Impact of Directors' Report Narratives on Stock Returns

Article Details
Pub. Date : Oct, 2020
Product Name : The IUP Journal of Applied Economics
Product Type : Article
Product Code : IJAE41020
Author Name : Richa Gupta
Availability : YES
Subject/Domain : Economics
Download Format : PDF Format
No. of Pages : 14



The study aims to assess the impact of directors' report on the stock returns of selected firms. The sample considered for the study includes Nifty 50 companies, excluding 12 banking and financial firms for five years, i.e., from 2013-14 to 2017-18. Five parameters from the directors' report, i.e., Activity (AC), Optimism (OP), Certainty (CE), Realism (RE) and Commonality (CO), are considered as independent variables, whereas stock return is considered as the dependent variable. Beta, market capitalization and debt-equity ratio are control variables. The study applies panel fixed and random effects model and Panel Vector Auto-Regression (PVAR) to examine the impact of directors' report on stock returns. The study observes unidirectional causality from OP and CE to stock returns. Reverse unidirectional causality is observed from stock returns to CO. The study further reveals that CO and CE negatively impact stock returns. The implications of the study for the stakeholders of the companies are: first, they need to follow the directors' report in addition to financial statements and second, the kind of information which is important for them is related to CO and CE features of the report. The study contributes to the existing literature by using content analysis on directors' report and its impact on stock price. It also analyzes the informational dynamics between the content analysis parameters and stock returns.


The directors' report of a company is a very critical part of an annual report. It is a forward- looking document fashioned by the board of directors under the requirements of Indian Companies Act, 2013 which spells out to its shareholders the current status of the company, material changes and commitments affecting the financial position in future.1

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