Deciphering the Influence of the Tone of Management Discussion and Analysis on Corporate Innovation: Integrating Textual Analysis with Empirical Corporate Data

How does Management’s Discussion and Analysis (MD&A) sentiment tone affect corporate innovation? The influence mechanism is straight and very robust. To some extent, the positive sentiment tone, representing a psychological state, serves as an intermediary between macro or micro conditions and corporate innovation. This paper uses a machine learning method to measure the MD&A sentiment tone and get innovation indicators in a broader sense. The fix effect model shows that when the value of a firm’s positive sentiment tone increases by 1 unit, its innovation increases by approximately 1.02 units. Eliminating industry and market effects, the exclusive sentiment tone information owned by the firm would still play a strong influence on innovation.