Wednesday, 6 May 2026
Independent Equity Research
Tone · sentiment · growth

How does management's tone track the firm's growth?

We score the Management's Discussion & Analysis (Item 7) of every 10-K with the Loughran-McDonald financial-sentiment dictionary. Tone is plotted at its raw scale (left axis, centered at zero); revenue and net‑profit growth are compounded from the earliest available year (right axis, FY1 = 100). The two axes share a single chart so you can read tone against the firm's growth, not on top of it.

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Method

The 10-K is fetched from EDGAR; Item 7 (Management's Discussion & Analysis) is extracted from the plain-text body. Tokens are matched against the four Loughran-McDonald word lists (positive, negative, uncertainty, litigious). Positive matches preceded within three tokens by a negator (no, not, none, neither, never, nobody) are dropped. Tone is then (positive − negative) ÷ total words. Revenue and net income come from the firm's XBRL company facts filings, so fiscal-year boundaries align with the filing being scored.

Loughran, T., & McDonald, B. (2011). When is a liability not a liability? Textual analysis, dictionaries, and 10-Ks. The Journal of Finance, 66(1), 35–65.