Setting the Right Tone: How Data Science Enables Investor Communication to Choose the Right Language

Setting the Right Tone: How Data Science Enables Investor Communication to Choose the Right Language

Facts matter in financial communication, but academic research has revealed that soft information such as the tone and readability also impact the decision-making of investors and ultimately stock returns. Information Systems (IS) research has developed measures to quantify readability and tone of textual content, among which are techniques from statistical learning which are capable of extracting the most relevant words for investors. To make this knowledge accessible, we develop an IS prototype that guides communication practitioners to set the right tone in their investor communication. First, we identify relevant practitioner needs using requirements engineering. Second, we translate these needs into an IS prototype which seamlessly integrates into text editing processes and serves as a decision support system to steer readability and tone. Third, we pilot our IS prototype with 37 companies and successfully validate our prototype’s capabilities in a survey with financial professionals.