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CEOs’ Letters to Shareholders: Do Investors Use Them? Evidence from S&P 500 Firms

CEOs’ letters to shareholders, are the most prominent and prevalent form of direct written communication between CEOs and investors: over 65% of S&P500 firms include CEO letters in their annual reports in the recent decade. We find that investors find CEO letters useful in their decision-making: stock prices react significantly to the tone of the letters, but not to the tone of 10-Ks or MD&As. We corroborate the above findings by showing that these letters reflect current financial performance and are predictive of future financial performance, consistent with FASB Conceptual Statement’s (SFAS No. 8) discussion of the properties of information useful to investors. Cross-sectional analyses reveal that investors find CEO letters more informative when 10-Ks are harder to read, or when the letters contain more quantitative information. We also find evidence that retail investors find CEO letters more useful than institutional investors. Evidence in this paper is useful to both academic researchers interested in the efficacy of various forms corporate communications and to firms interested in improving the craft of annual letters.

Speaker: Dr Shuping Chen
Wilton E & Catherine A Thomas Professor, The University of Texas at Austin
When:
3.30 - 5.00 pm
Venue: School of Accountancy Level 2, Seminar Room 2-1
Contact: Office of the Dean
Email: SOAR@smu.edu.sg