tonalitytech - evidence-based capital market communication
TRANSCRIPT
Drive corporate value through evidence-based capital market communication
Corporate Presentation | TonalityTech
Supported by
Executive Summary
Language matters to investors▪ Choosing the right words is essential to communicate in the right way with investors,
but IROs lack evidence how language drives investor decisions
Steering capital market communication = steering corporate value▪ Our research shows that a negative tone in capital market communication leads to a 2.7%
lower stock return when benchmarked against top-performing communicators
Striving towards maximum user-friendliness through our Word Add-In▪ We assure a seamless integration of our big data knowledge into text writing processes
through joint software development with IROs in the US and Europe
▪ Our inter-active Word Add-In allows for instant optimization of financial disclosures to optimize the tone in your capital market communication
From cutting-edge research to evidence-based financial communication▪ Our solution is based on powerful big data algorithms that we develop in cooperation with
leading academic data scientists and validate in real-world experiments with investors and analysts
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Choosing the right words is essential to communicate in the right way with investors
What IROs can controlThe essence of capital market communication
The What
Set of facts A
BThe How
How you communicate facts
We help IROs to understand how investors perceive language and to choose the right words in capital market communication
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IROs lack evidence how language drives investor decisions
Source: Interviews with investor relations and corporate communication professionals
"Our communication is all about facts. However, we face a lack of evidence on how investors perceive it."
– Head of IR and communications
… lacks a fact base
"Each executive has their own opinion of how investors process news."
– Head of IR… is subjective
"We always face the same question: How do investors perceive our language?"
– Head of IR
… leads to unknown market reactions
Choice of words… Concerns of IROs
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| 4Source: TonalityTech analysis, Yahoo Finance
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25
30
35
40
45
50
55
60
65
October 2015August 2015 December 2015
-40%
Stock price of a global automotive supplierIn Euro
Profit warning
Neutral tonalityVery negative tonality
Anecdotal evidence suggests that overly negative language amplifies the market reaction to bad news
EXAMPLE
“…surprisingly heavy charges combined with an unexpected rise in unit output figures…”
Investors are particularly sensitive to negative language accompanying bad news
Our machine learning algorithms identify the tonality of words based on their effect in capital market disclosures
Capital market disclosures (e.g. earnings, 8-Ks, etc.)
Abnormal stock market returns
Machine learning algorithms
$$$
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Co-developed with leading academics
Dynamic tonality dictionary
The TonalityTech big data approach outperforms the predictive accuracy of conventional approaches with a factor of 5
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21
100
5 X
Standard approach(static dictionaries)
TonalityTech approach
Coefficients of dictionary regression on returnsNormalized to 100
TonalityTech statistically selected dictionaries Benchmark approach
TonalityTech outperforms predictive accuracy of standard approaches by a factor of 5
Bottom 25%
1.9
AverageBenchmark
The wrong choice of words leads to lower returns
Abnormal return depending on tonality1
In percent
▪ Negative tonality yields an
up to 2.7% lower excess
return
▪ For a company with a
market capitalization of
USD 10 billion, this means
up to USD 270 million in
lower stock valuation
1 Control variables account for company performance (market-to-book value, market value, cumulative abnormal returns,
market model alpha), sector performance (sector index) and market performance (market index)
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-2.7
-1.2
The tonality in capital market disclosures has a lasting effect on stock
prices
Ad hoc announcement day
Negative tonality
Positive tonality
Neutral tonality
-4
-2
0
2
4
-2 -1 0 1 2 3 4 5
Trading days relative to ad hoc announcement day
Average cumulative abnormal return of selected stocksIn percentIn percent
SOURCE: Liebmann, Tetlock (Journal of Finance) | 8
Financial professionals give better ‘Sell’ or ‘Buy’ recommendations when financial disclosures have a higher tonality
| 9Source: Survey conducted in Q1 2016; TonalityTech, Finance Research Group – University of Freiburg
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Improved tonepress release
Original press release
More favorable ‘Sell/Buy’ recommendationNumber of responses2
More positive tone leads to better evaluation by investors & analysts1
We improve the tone of original (published) press releases based on our big data insights
1: P-value for statistical significance < 0.001; 2: 70 participants, thereof 39 analysts, IROs, (investment) advisers with multiple ‘A/B’-tests
The study
The results
Implication
76% of finance professionals give a better recommendation based on disclosures with a more positive tone
Our solutions enable IROs to enhance the tone in their capital market communication by choosing investors’ language
Solutions
Words matter: accounts for the perception of language
Capital markets & investor communication
1
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Dynamic: regular updates to reflect changes in language perception
Tailored: accounts for different languages and target groups
Tonality analytics & benchmarking
2
Based on our big data analytics insights, we help IROs to choose the right words when communicating with investors
Highlightingindicates tonality:Red – NegativeBlue – Positive
Replacement suggestions sorted by tonality
PDF and email reports included
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1
With tailored language analyses, we enable IROs to benchmark their language against their peers
| 12Source: TonalityTech analysis
Average tonality
In percent, past 12 months
53.1
46.0
BenckmarkTop-3 competitors
Internationalbank
-13%
Average readability
In percent, past 12 months
67.2+9%
73.1
An international bank with 15 percent lower tonality and higher variance in tonality vs. benchmark
Overall high readability in financial disclosures; slightly ahead of peers
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DISGUISED CLIENT EXAMPLE
Our customers appreciate our ‘language compliance check’
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Craig Marks, Director of Investor Relations at AstraZeneca, about
our TonalityTech add-in:
“integrates seamlessly with our writing process”
“immediately tells us which words are good to use, easy to read and
which aren’t”
“helps maintain quality compliance through an objective score”
The financial press frequently features TonalityTech
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“Say it better: A new software (from TonalityTech) supports writing disclosures
with a positive effect.”
- Börsen-Zeitung, October 24, 2015
Our solution enables evidence-based capital market communication
Drive corporate value
Anticipate investor reactions
Enable evidence-based communication
Optimize company communications to improve
market valuation
Understand how investors incorporate language into
their decision making
Succeed in corporate communication through our
innovative solutions
Contact us at [email protected]
Visit our website www.tonality.tech
| 15Watch our product video https://youtu.be/tDvhpj0BIE8