Comprehensibility and comprehensiveness of financial analysts’ reports

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Comprehensibility and comprehensiveness of financial analysts’ reports Marlies Whitehouse-Furrer ∗ , Daniel Perrin Zurich University of Applied Sciences, Switzerland

a r t i c l e

i n f o

Article history: Received 14 October 2014 Accepted 11 March 2015 Keywords: Equity analysts Investor relations Communicative potential Cross-disciplinary communication Pragmatic text analysis Writing coaching

a b s t r a c t Financial analysts and their texts play a key role in the financial community. Despite their importance, both the analysts as writers and the texts themselves are widely under-researched, as a review of the literature in the field reveals. This is the gap that our large research project on financial analysts’ written communication aims to close. Based on a context-annotated corpus of roughly 1500 financial analysts’ company reviews (in German, English, and Japanese), we investigate the cultural, organizational, and individual variety of the texts’ communicative potential for investors. The final goal of the entire research project is to identify critical situations and situative good practices of cross-disciplinary communication in the financial community. In the present paper, we focus on one specific genre, a small qualitative sample, a product-only approach, and on one specific research question from the financial communication project: why do equity analysts’ company updates for investors fail to reach their communicative potential? We start by systematically contextualizing the genre in the light of the research question (Section 1). Based on a qualitative English sub-corpus (Section 2), we then explain how we used pragmatic text analysis to investigate the texts’ comprehensibility and comprehensiveness in cross-disciplinary communication (Section 3). The results suggest that these texts bear the risk of partial communicative failure (Section 4) and what actions can improve their communicative potential (Section 5). © 2015 Swiss Association of Communication and Media Research. Published by Elsevier GmbH. All rights reserved.

1. Financial analysts as professional writers Around the globe, financial analysts publish their reports, assessments, and forecasts about the capital markets daily. These publications are directed toward helping investors understand the fast-changing markets in order to make sound investment decisions. All stakeholders in the economy, individuals and social groups alike, are affected by such decisions: directly, with individual investments, or indirectly, with the allocations of pension funds, for example. A broad field of studies has investigated financial analysts’ texts and their role in capital markets, but until now research has focused mainly on how analysts’ estimates are generated, how these estimates interact with the markets, what their implications are for other market participants (cf. Jorns, 2009, 3), and how much additional return can be achieved with analysts’ forecast data (cf. Krotter, 2009, 135). Other examinations aim at summarizing the myriads of details of analysts’ concepts and terms (e.g., Ramesh,

∗ Corresponding author. E-mail address: [email protected] (M. Whitehouse-Furrer).

2001) or investigate the role that argumentation plays in finance (cf. Palmieri & Palmieri, 2012, 100–101). The fact that every financial analyst is a professional writer has been widely ignored so far. It has been observed that financial analysts’ texts are difficult to understand (cf. Hieke, 2000, 203), and that investors need very profound knowledge to assess analysts’ recommendations (cf. Ritz-Appert, 2002, 82). There are individual studies investigating particular linguistic phenomena in analysts’ texts (e.g., Verronneau, 2012) but no encompassing research as yet on the cultural, organizational, and individual variety of the texts’ communicative potential for investors. This article contributes to closing this research gap. In Section 1, we describe equity analysts’ work and writing situations within the financial community. The decisive characteristics of the qualitative corpus are discussed in Section 2. The reasons for applying pragmatic text analysis as a method to explore the interaction of writing activities and environments, as well as the parameters used are laid out in Section 3. In Section 4, we explain why the analyzed texts are hard to understand for some of their target readers. Section 5 concludes the article by outlining which organizational measures can improve the communicative potential of equity analysts’ company updates.

http://dx.doi.org/10.1016/j.scoms.2015.03.007 1424-4896/© 2015 Swiss Association of Communication and Media Research. Published by Elsevier GmbH. All rights reserved.

Please cite this article in press as: Whitehouse-Furrer, M., & Perrin, D. Comprehensibility and comprehensiveness of financial analysts’ reports. Studies in Communication Sciences (2015), http://dx.doi.org/10.1016/j.scoms.2015.03.007

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Figure 2. Flow of information in the financial community (Whitehouse-Furrer & Perrin, 2014). Figure 1. Financial analysts in context. Adapted from Jakobs & Perrin, 2013, 19.

Financial analysts are professionals who collect and prepare economic data in the areas of shares, bonds, funds, and sustainable investments, who make short and long-term estimates and forecasts from a micro and macro perspective, and who publish their recommendations in and for the financial community. They are professional writers, working in a complex field of competing colleagues, guidelines, and interests of companies, investors, and journalists, whilst having to align with legal requirements as well as the guidelines of their employers (often a bank or a broker). Referring to Jakobs’ nested environments of writing (Jakobs & Perrin, 2013, 19), the following graph situates financial analysts within the financial sector (Figure 1). 1.1. Equity analysts Financial analysts can be divided into various groups according to the different areas they cover in their work: markets, technical trends, funds, bonds, sustainable investments, equity, etc. Given the impact that equity analyses have on the markets, the focus in the following will be on equity analysts. As intermediaries between the company and the investor, equity analysts play a central role in capital markets (cf. Schlienkamp, 2002, 169). According to a survey carried out with journalists, communication managers, financial analysts, and scientists, it has been acknowledged that the analysts and their recommendations have the strongest impact on the share prices (cf. Rolke and Wolff, 2000a, 237) and sometimes even cause turbulence on the stock markets (cf. Schlienkamp, 2002, 168). Equity analysts produce a variety of text genres. The main formats are: (a) highly focused short-term updates of two pages which inform investors about current market events or about a company; (b) frequently and regularly published mid-size company updates of four pages which provide analysts’ more elaborate assessments; (c) company analyses of eight pages or more which offer various background information; and (d) sector studies which give a detailed overview about an industry and its companies. The analysts are responsible for the contents of their texts, but additional agents are usually involved. The document cycles through various stages of value generation (Jakobs, 2005, 25) until the text is finally published. All texts in the corpus analyzed for this paper (see below, Section 2) underwent such a procedure of document cycling: the equity analyst wrote the text, a team member (most often the superior) gave feedback on it, and the analyst adjusted the text accordingly. In a subsequent step, the text was copy-edited by an editorial team within the organization and made compliant with the guidelines of the employer, in this case the bank. As part of the bank’s communication channel, analysts’ texts are institutional products. They therefore transport and shape

information, but also reflect the values of the bank (cf. Jakobs, 2005, 29). Most often, equity analysts work in a research team, usually consisting of sell-side and buy-side analysts. It is the team’s job to not only analyze listed companies and make recommendations for investors, but also to prepare investment decisions in the case of initial public offerings (IPO) or capital increases. In any case, research texts should provide a good basis for investors’ decisions. Many equity analysts are employed by brokers or banks. In a bank, they work with traders, who offer securities to portfolio managers and institutional investors, as well as with client advisors, who recommend investment solutions to the bank’s customers. So-called firewalls are in place to prevent equity analysts from exchanging information with certain organizational units of the bank, for example the credit department, which guarantees the analysts’ independence. However, many banks have reduced their research teams to a bare minimum in order to cut costs. On the one hand, this leaves fewer analysts with more work; on the other, it means that the same text is frequently used for several groups of investors with different background knowledge. Thus a genre originally intended for a particular audience might be indiscriminately distributed to multiple addressees. Retail investors in particular experience difficulties in understanding these texts (cf. Ritz-Appert, 2002, 82), since comprehending the analysts’ recommendations and assessing a company accurately require profound knowledge of the financial markets. 1.2. Financial community Investors, financial analysts (including rating agencies), journalists, and companies are the participants in the financial community. They influence each other and depend on each other at the same time (Figure 2). Investors are individuals, companies, institutions, or similar entities committing money to investment products with the expectation of financial return. In contrast to a speculator, who is willing to accept a higher level of risk in the hopes of achieving higher-thanaverage profits, an investor seeks to minimize risk and maximize return. Investors rely on information and forecasts on financial markets and firms that are provided by other participants in the financial community, especially financial analysts. Analysts’ judgments are considered to be the most appropriate approximation of market expectations (cf. Jorns, 2009, 2). Sound analysts’ reports with processed data can help investors gain a clearer picture of the events on the financial markets. These reports are for information purposes only and are never to be understood as investment instructions. Companies inform the financial community using different channels, different media, and different genres. Equity analysts play an important role here as well: the companies regularly organize meetings between their management or board and equity analysts.

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This direct contact with the company is vital for both. By informing the equity analyst about the course of business, the company can ensure that idle rumors do not unduly impact the share price. In return, the equity analysts get the necessary information to assess the current and future development of the company as accurately as possible, helping form recommendations for investors. Here is one of the most distinct differences between analysts and journalists: whereas analysts have to grapple with abstruse rumors and develop scenarios accordingly, journalists do not (Döring, 2000, 127). Journalists generally write for the same addressees as analysts do. But whereas journalists describe, classify, and comment on facts, equity analysts need to make specific recommendations for investors. Analysts and journalists influence each other: journalists often seek analysts’ opinions and complement or replace their own judgments with the analysts’ assessments. Analysts’ opinions are considered part of the standard in economic journalism (cf. Rolke & Wolff, 2000b, 12–13). Especially when companies undergo a crisis or are involved in a scandal, analysts’ opinions are often cited in the press. One of the reasons for this development is that analysts need additional qualifications in economics whereas more and more journalists without profound technical knowledge work in economic journalism (cf. Döring, 2000, 122). Since investors, company representatives, and journalists are not necessarily experts in finance, the communication between analysts and these three stakeholder groups has to be considered cross-disciplinary. 1.3. Financial sector

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for the long formats. Second, the mid-size format of four pages requires analysts’ elaborate assessments, in contrast to the short format, which is used for highly focused short-term news only (see above, Section 1.1). Equity analysts’ company updates in the mid-size format of four pages have to follow a template structure (Figure 3). Roughly a third of the front page comprises standardized fields. The text box on the top left provides information about the analyst’s investment recommendation (sell, hold, or buy), the current share price, the bond rating of the company, the Bloomberg ticker, the ticker symbol, the market capitalization, the free float, and whether the stock is part of the sustainable investment universe of the bank. Also included in the text box are details about the equity analyst who wrote the update. A graph to the right shows the development of the share price, and several key figures about the company’s performance are provided in a table below. The data fields are followed by a short summary of the text. The text itself is about two and a half pages long. The last page consists of a table with the company’s financial figures over the last couple of years and the equity analyst’s estimates for the next few years. In the present paper, the financial figures and graphs were not included in the analysis. As the macro structure of the texts in the corpus is defined by the organization and follows a standard format which assures overall text coherence, the present paper abstains from presenting results of macro structure analyses and instead focuses on more critical linguistic features: linguistic choices that the analysts are free to make and that affect the texts’ comprehensibility and comprehensiveness.

The financial sector is characterized by rapid changes, and it reacts very sensitively to news, events and information. Almost every event and phenomenon has the potential to impact on the financial sector. A natural disaster, for example, sets the share prices of the insurance industry in motion, or increasing unemployment rates can weigh on the car industry share prices. Especially after the 2008/2009 financial crisis, the ongoing debate on how much influence individual market participants exert has again become relevant. Financial analysts’ texts are one form of influence on the market participants.

In the overall project, we apply and triangulate (cf. Denzin, 2012; Grésillon & Perrin, 2014) complementary methods to investigate text production, text products, and their reception. In the present paper, however, we focus on a product perspective and, within the range of methods to analyze text products, on pragmatic text analysis (3.1) to investigate (3.2) the comprehensibility (3.3) and comprehensiveness (3.4) of the text and develop appropriate measures to increase their communicative potential (3.5).

2. Sample corpus

3.1. Pragmatic text analysis

Our overall corpus includes roughly 1500 financial analysts’ company reviews. The reviews are written in German, English, and Japanese, and all the text data is annotated with context information. Drawing on this corpus, we have investigated, for example, the cultural, organizational, and individual variety of the texts’ communicative potential for investors. Since the aim of the present paper is to point out where the shortcomings are in one specific genre of equity analysts’ texts, the results discussed in the following sections are based on a qualitative English sub-corpus only. This sub-corpus of 28 texts consists of all of the mid-size equity analysts’ company updates published between August 15, 2012, and December 31, 2012, by a large Swiss bank. The timeframe was determined by research pragmatics. It corresponds to the slot within the data generation phase in which the researchers had open access to the banks’ text production processes in order to gather deep contextual data for systematic text annotation. Taken together, the texts in the sub-corpus cover all industries. They were all copy-edited by an editorial team within the bank. Mid-size refers to a standard format of four pages, as opposed to short updates of only two pages and large ones of eight pages or more. We chose to focus on mid-size updates because of their frequency and scope. First, all the equity analysts have to produce four-pages updates frequently and regularly, which is not the case

We foreground product analysis for three reasons. From a theoretical perspective, such an approach complements procedural analyses by providing insights into the potential of texts to serve as offers of communication in all conceivable contexts. From the perspective of research practice, text products are accessible enough that large corpora can be accumulated for quantitative analyses. From the perspective of knowledge transformation, finally, appropriate product analyses allow for flexible integration in settings of training and coaching with practitioners. However, a precondition for valid product analyses is researchers’ deep field knowledge. This field knowledge is what allows qualitative research to contextualize text features and, by doing so, to interpret situated activity in the “empirical domain” as traces of “what is going on” beyond (Carter & Sealey, 2009, 75). In the case of the present investigation, the first author has more than 20 years of professional experience in financial analysis and communication. This context experience is what allows us to work with pragmatic text analysis (Hoffmann, 2001). Whereas production and reception can be investigated as situated processes taking place in concrete and observable situations, text products are the traces of and triggers for a large variety of communication processes. Therefore, in pragmatic text analyses, text products have to be contextualized by the researchers based on assumptions and

3. Method

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Figure 3. Example of the standard format for the mid-size report.

knowledge in the respective field. “The pragmatic analysis of texts and discourse investigates the relations between linguistic items, situated activity, and social conditions. The analysis is always shaped by researchers’ knowledge: notably knowledge about language and activity, but also about social and cultural contexts.” (Hoffmann, 2001, 283; translation by present authors). In our case, “knowledge about social and cultural contexts” applies to the layered, dynamic contexts of financial analysis, as explained above (Section 1). A basic assumption of pragmatic text analysis is that, to a certain extent, communication contexts and processes are reflected in features of the text product itself (cf. Jakobs & Perrin, 2013, 19). These

features range from single words up to the macro structure of individual texts or entire genre ecologies (Bazerman, 1994; Bazerman & Devitt, 2014). The choice of which features or markers to analyze depends on both the research question and the researchers’ contextual knowledge, specifically their theoretical and practical competence in explaining what macro-structural properties certain text markers indicate. 3.2. Choice of text markers Writing processes take place in a complex multi-conditional framework (see above, Figure 1), which often impedes text

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understanding (cf. Jakobs, 2006, 329). For investors, however, it is crucial to comprehend analysts’ texts: only if investors fully understand the analyst’s recommendation can they use it as a piece of information to come to a sound investment decision (see above, Section 1.2). As early as 1976, guidelines for financial analysts required that “[i]nvestment information must be prepared and disseminated to systematically enable each user to acquire and use as much as he needs for his investment decisions [. . .]” (Duff & Phelps Inc., 1976, 42). In a similar vein, several German organizations, such as the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) and the association for the protection of capital investors (Schutzgemeinschaft der Kapitalanleger, SdK), have objected to the use of financial jargon and complicated sentences in financial texts (see Hieke, 2000; Seibel, 2013). As the macro structure of the texts in the corpus is set by the organization and follows a standard format which assures overall text coherence (see Section 2), the present study focuses on those aspects of comprehensibility (cf. Brun & Hirsch Hadorn, 2009; Drinkmann & Groeben, 1989; Langer, Schulz von Thun, & Tausch, 2011) where the financial analysts are free to choose between linguistic options (Section 3.3). Moreover, we wanted to know whether the texts are not only comprehensible, but also comprehensive (3.4). Whereas a comprehensible text has the potential of being understood as coherent and meaningful by its target readers, a comprehensive text includes all the relevant information – in whatever way. Thus, equity analysts’ texts for investors bear maximal communicative potential if they combine high degrees of comprehensibility with high degrees of comprehensiveness (3.5) – or put simply: accessible form and complete content. 3.3. Markers of comprehensibility By markers of comprehensibility, we mean all the linguistic text features that are likely to foster communication success when processed by the target readers. In the following paragraphs, we list the set of markers of comprehensibility we chose for our analysis: (a) Ambiguity and (b) Density, which entail complex linguistic units and require interpretative identification, as well as (c) Abbreviations and (d) Specialist terms, which consist of single words or small word groups. In the following sections, we define each marker type, explain its contextual relevance, and provide a short sample analysis. (a) Ambiguity Definition: Ambiguity markers are propositions or groups of propositions in which key information is provided imprecisely and, therefore, open to more than one interpretation. Context: An investor can fully and clearly grasp the information offered in an analyst’s text when there are no compositional ambiguities. Only then can the text serve as a useful basis for an investment decision. Nevertheless, analysts – who are measured and judged by their forecast accuracy – tend to write ambiguously when the development of the company they cover is rather unclear. As such, their forecast can later be interpreted in several ways. Although this openness can have a positive impact on the analyst’s forecast performance, it also leaves the investor without clear guidance and hence completely misses the point of financial forecasting. Example: “We then deduct a 15% discount from the total figure. The problem with this valuation is that the Publigroupe Group would have to be broken up first.” (text PubliGroupe, lines 254–257). Comment: It is not obvious whether the valuation is only calculated in theory and abandoned or whether the valuation is factored into the analyst’s recommendation despite this considerable

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distortion and the fact that the company would have to be split up for this calculation. (b) Density Definition: Density markers are very compact sentences or text passages where the overabundance of information obscures the content. In our investigation, we distinguish between syntactic and semantic markers of overly high Density: the syntactic marker is a sentence longer than four lines in the original text layout; the semantic marker is two adjacent lines in the original text layout comprising more than four information units. Context: Analysts have huge background knowledge about the companies they cover and about the company’s industry sector. In the standardized four-page texts for investors, however, analysts need to tell the investors both in detail and very briefly the essential points for their investment decisions. As a consequence, these texts tend to be dense and overloaded with information, which makes it hard for the reader to process, assess, and use the pieces of information for a sound investment decision. Example: “The Print National segment fared significantly better (includes the “20 Minutes” publication, “Le Temps”, and “Le Matin”) with a strong EBIT margin of 22.7%, while the Print Regional segment (includes “Tages-Anzeiger,” “Der Bund,” “Berner Zeitung,” and printing houses) fared somewhat better at 8.2%.” (text Tamedia, lines 98–104). Comment: In the original text, this sentence spans over five lines. It is coded as overly dense because it contains two sets of lists with many units of information. Moreover, the reading of the sentence is made considerably more difficult by the amount of information in brackets; it is difficult to file and process all the details in the sentence. (c) Abbreviations Definition: Abbreviation markers are acronyms of complex technical terms which are not explained in the text and, therefore, impede full comprehensibility of the text in cross-disciplinary communication. Context: Even though many investors are familiar with some general financial terminology and key words, such as “cash flow” or “balance sheet”, many of them do not have specific knowledge about accounting or technical financial terms and even less about the Abbreviations of these terms. Every use of an Abbreviation that is not explained diminishes the comprehensibility of the text (Schneider, 2011) and its communicative potential. Hence, the higher the number of unexplained Abbreviations in a text, the more difficult it is for an investor to process the information provided. Example: “Furthermore, EBITDA will be negatively impacted to the tune of roughly CHF 60 million per annum starting from 2013 due to the changeover to IAS 19 (pension fund obligations).” (text Swisscom, lines 432–434). Comment: The Abbreviations “EBITDA” and “IAS 19” are not explained in the text. For an investor who is not familiar with these terms it is not possible to fully understand the meaning of this information and its implications on the company’s result. (d) Specialist terms Definition: Specialist terms are words or phrases referring to technical issues in a precise way that is defined by the discipline(s) using the term. Since understanding such definitions requires thorough disciplinary background, technical terms tend to be incomprehensible, vague, or even misleading for language users from outside the discipline. Context: In order to make texts more comprehensible in crossdisciplinary communication (see above, Section 1.2), most authors of style guides in the field of technical and professional communication recommend explaining Specialist terms (cf. Langer, Schulz

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von Thun, & Tausch, 2011, 22). Specialist terms are mostly considered to alleviate communication between insiders while raising barriers for outsiders (cf. Schneider, 2011, 175). Equity analysts’ texts aim to sufficiently inform investors about a company and, therefore, should explain matters in a way that is understandable for the target reader. The text analysis investigates how much the texts are interspersed with Specialist terms from the relevant industry sector and from finance that can be expected to fail in cross-disciplinary communication. Example: “The acquisition of Guidici moreover brings leading know-how in the area of false-twist texturizing to the group.” (text Schweiter Tech, lines 312–315). Comment: The information about Guidici cannot be assessed if the investor does not know what “false-twist texturizing” is. Should this be an important production process in the industry, Schweiter can strengthen its Market position considerably with this acquisition. If “false-twist texturizing” is a niche, however, sales will not likely increase significantly with this new part of the company. Both cases would have an impact on the investors’ expectations and, therefore, on Schweiter’s share price. 3.4. Markers of comprehensiveness To be able to decide how to allocate funds, it is crucial for an investor to be well informed about a company. Information in equity analysts’ text can be divided into three groups (cf. Bucher, 2011, 9–15): – Quantitative factors (hard facts), such as profit, cash flow, price earnings ratio, and dividend. Their influence on the share price has been estimated at roughly 65% (cf. Rolke & Wolff, 2000a, 233). Quantitative factors help assess the financial risk of a company. Analysts set up a profit model for the next few years that contains different economic scenarios, industry specific developments as well as key figures from the profit and loss statement, the balance sheet, and the cash flow statement. The (a) Absolute valuation methods and (b) Relative valuation methods are based on the figures in the profit model. – Qualitative factors (soft facts), such as image, company vision, and reputation of the board. Qualitative factors help assess the business risk of a company. Analysts monitor the company closely regarding many different issues that can have an impact on the business risk and hence on the company’s share price. In this paper, we focus on the four major standard criteria used in financial analysis: (c) Story, (d) Market position, (e) Management, and (f) Market trends. – Assessment and opinion. The (g) Analyst's assessment provides an evaluation of company’s quantitative and qualitative factors and recommends a strategy with which the investor is most likely to generate a maximum profit with the company’s securities. These markers of comprehensiveness are established in the field of financial analysis as valid and important key measures for every company and every industry. They indicate whether the analysts’ texts offer enough information for a sound investment decision and, with regard to the qualitative factors, how detailed the information should be. (a) Absolute valuation methods Definition: Absolute valuation method markers are propositions referring to the analyst’s attempt to forecast a company’s financial profile for the next few years. They are partially based on analysts’ assumptions, for example the determination of the discount rate. Context: The most prevalent absolute valuation methods are the discounted cash flow model (DCF: enterprise value = sum of

discounted free cash flows), the discounted dividend model (DDM: enterprise value = sum of discounted dividend), and the sum of the parts model (SotP: enterprise value = sum of parts of the company). In every industry, there are also specific absolute valuation methods, for example the solvability ratio in the insurance sector. Since the DCF model is applicable for most industries, it was chosen as one of the markers for the analysis in the present paper. Example: “Our DCF valuation attributes the Panalpina share still a certain potential.” (text Panalpina, lines 364–365). Comment: The current valuation with the DCF indicates that Panalpina’s share price is likely to rise. However, there will only be a moderate increase in the share price. (b) Relative valuation methods Definition: Relative valuation method markers are propositions referring to the relation between certain key figures of a company. Such, they enable the analyst to compare the analyzed company with a peer group in the same industry, with the overall market, or in the historical context. Context: Frequently used Relative valuation methods are: (1) price/earnings ratio (PE ratio: share price divided by the expected or generated profit per share). The PE ratio did and continues to play a considerable role in the share valuation (cf. Schlienkamp, 2002, 172–173). (2) Enterprise value/earnings before interest, taxes, depreciation and amortization (EV/EBITDA: where EV = market capitalization plus liabilities minus liquidity). EV/EBITDA measures the fair market value of a company. (3) Price/earnings to growth ratio (PEG: PE ratio divided by expected percentage profit growth). A PEG below 1 signals that the share is undervalued; a PEG above 1 indicates that it is overvalued. Since the PE ratio is a default value to assess a share price, it is taken into account in the analysis here. Example: “Our new estimates result in a PE ratio of more than 20× even for 2014, which we view as too high.” (text Panalpina, lines 396–398). Comment: The analyst views the PE ratio as too high; all potential positive news is already factored in the share price. This means that the share price is unlikely to rise, but will rather drop with future events or news items. (c) Story Definition: Story markers are groups of propositions referring to the current development of the company and its strategy. Context: In order to assess a company it is important to be informed about its current situation, for example: Is there a merger soon, did the Management change, or was there a turnaround recently? Example: “Following the sale of the Precision Tubes division in 2007, the dynamic of expansion and restructuring in the Dätwyler Group has increased.” (text Dätwyler, lines 55–57). Comment: The disposal of the precision pipe unit in 2007 resulted in changes in the company that are still going on. Some investors may view this dynamic as positive, whereas other investors might see some risks because the process is not yet concluded. (d) Market position Definition: Market position markers are groups of propositions referring to the position of a company in comparison to other companies in the same market or industry. Context: The comparison is generally made in terms of sales. It can, however, also be made in terms of revenue, product usage, consumer perception, etc. The Market position can be evaluated for the whole company or for only a certain product or brand. Information about the Market position of a company is crucial for investors. It is important to know how a company is situated in the market

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regarding products, quality, costs, or innovation in order to extrapolate the future profits and the development of the share price. Example: “With a real estate portfolio of 8.5bn Swiss francs, SPS is the largest Swiss real estate company. After the capital increase, SPS belongs to the top 5 real estate companies in Europe with a market capitalization of 4.5bn Swiss francs.” (text Swiss Prime Site, lines 49–53). Comment: With this data, it is fairly clear for an investor how the company is situated in the market, making it easier to draw conclusions about its pricing power, for example. (e) Management Definition: Management markers are groups of propositions referring to an entity of highly ranked employees with considerable responsibility regarding the development of the company. Context: Planning, realization, and controlling of the company’s processes are the main responsibilities. Financial analysts closely monitor the managers regarding credibility, consistency, trustworthiness, and corporate governance. From an investor’s point of view, it is more likely that there will be further shifts in a company whose Management and strategy changes frequently. This is also reflected in the share price often being fairly volatile. Example: “Since October 2008 CEO Kottmann has been working on giving Clariant a complete overhaul.” (text Clariant, lines 69–70). Comment: Since October 2008, CEO Kottmann has restructured Clariant significantly and will carry on doing so. This means that the Clariant of today can no longer be directly compared to the company before October 2008. (f) Market trends Definition: Market trend markers are groups of propositions referring to patterns of developments in an industry. Context: Market trends depend on various factors, such as cyclicality, trends in investors’ behavior, and market psychology. Depending on whether a company is active in a procyclical, countercyclical or acyclical industry, the investor will decide against the backdrop of the current economic situation what the best investment strategy is. Example: “Steel production in the 27 EU-member countries (EU-27) using the electric arc steel-making process – a process that Schmolz + Bickenbach consistently utilizes as well – has surged from 71 to 76 million tons per annum in the past ten years.” (text Schmolz + Bickenbach, lines 194–198). Comment: The Market trend shows that the steel volumes produced with the electric arc steel-making process have increased over the last ten years. Since Schmolz + Bickenbach is also producing steel with the electric arc process, it can be assumed that the company’s volumes in this section have also soared. If they have not, a closer look at the reasons for this would be justified. (g) Analyst’s assessment and recommendation Definition: Analyst's assessment and recommendation markers are groups of propositions referring to an analyst’s evaluation of a company’s quantitative and qualitative factors. Context: The value added of an analyst’s text is that the investor does not have to base the investment decision on prepared data and facts only. Drawing on models, tools and experience, the analyst provides an assessment of the company and recommends a strategy with which the investor is most likely to generate a maximum profit with the company’s securities. The summary of the analyst’s opinion is usually expressed by one word: “buy”, “hold”, or “sell”. The text analysis in the present article examines whether analysts explain in more detail why their ratings and recommendations are justified. This would enable investors to understand the reasoning behind the assessment.

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Example: “For the next few months, we do not see a positive trigger for the Panalpina share. Therefore, we downgrade the rating for the overvalued stock to ‘sell’.” (text Panalpina, lines 400–403). Comment: Since the analyst views the company’s share price as high and does not foresee any relevant news or triggers to justify it, he downgrades the rating of the share to “sell”. 3.5. Measures We measured the markers of comprehensibility (Section 3.3) and comprehensiveness (Section 3.4) taking into consideration that – all the texts had been read by another team member before publication; – the analyst had adjusted the text according to the team colleague’s feedback; – all the texts were copy-edited by an editorial team within the bank and made compliant with the guidelines of the bank. These contextual conditions allow for the basic assumption that the texts have undergone the organization’s quality processes of text production and correspond to the intended quality standards of comprehensibility and comprehensiveness. The following scales have been applied for markers of comprehensibility: if there is no occurrence of Ambiguity, overly high Density, unexplained Abbreviations, or unaccounted Specialist terms, a text is considered to fulfill the communicative potential in terms of the relevant marker. One occurrence of a marker is viewed as an accidental problem due to inattentiveness in the document cycle. Two or more occurrences of a marker are regarded as a systematic problem thoroughly affecting a text’s comprehensibility; these texts are expected to be hard to understand for the target reader. The scale applied for markers of comprehensiveness is as follows. If a marker is substantially present in the text, the text fulfills the communicative potential in terms of the respective dimension of comprehensiveness. Concise instead of substantial occurrences of markers are considered accidental problems. A marker’s total absence in a text is classified as a systematic problem. Of course, such a classification raises the issue of quantification. In the present investigation, we refer to the bank’s internal guidelines for this publication format, which consider 120 words an appropriate minimal count for each marker (Bucher, 2011, 25). This quantification, like the bank’s entire quality management of the document cycle, has been examined in the main project but cannot be discussed here due to space limitations. Within the group of markers of comprehensiveness, special measurement criteria apply to Discounted cash flow (DCF) and Price earnings ratio (PE). If a marker is present and compared to the same key figure of a peer company, the text fulfills the communicative potential in terms of the respective dimension of comprehensiveness. Occurrences of markers without comparisons are considered accidental problems. A marker’s total absence in a text is classified as systematic problem (Table 1). All the texts were examined regarding the markers explained in the previous sections and were coded with HyperResearch, a standard program for qualitative data analysis. 4. Results The results for the markers of comprehensibility indicate that the majority of equity analysts’ company updates exploited their communicative potential regarding the text markers of Ambiguity (19 texts) and Density (17 texts); 5 texts partly realized it in terms of Ambiguity, and 6 did concerning Density. Regarding

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8 Table 1 Markers of comprehensiveness.

Story Market position Management Market trends Analyst’s assessment DCF PE ratio

Fulfilled

Accidental problem

Systematic problem

Substantially present in the text: ≥120 words

Briefly mentioned in the text: 1–120 words

Omitted

Occurrence in comparison to peers

Occurrence without comparison to peers

Omitted

Ambiguity, 4 texts did not achieve their communicative potential at all, and with respect to Density there were 5 texts in the negative group. In terms of Abbreviations and Specialist terms, none of the equity analysts’ company updates fulfilled or partly fulfilled their communicative potential. On average, there were 7 unexplained Abbreviations and 12 unaccounted Specialist terms in equity analysts’ company updates. The highest numbers were reached with 11 Abbreviations (text Tamedia) and 39 unexplained Specialist terms (text Swiss Life). The lowest numbers were 4 Abbreviations (text GAM Holdings and Swiss Prime site) and 4 unexplained Specialist terms (text Holcim and text Huber & Suhner). Although not large enough for statistical evaluations, this analysis of a sub-corpus of all the texts of a relevant genre generated over a significant timespan indicates that there are comprehensibility problems – and that they occur quite frequently (Table 2). In contrast, the results for the markers of comprehensiveness show that the communicative potential is fully or at least partly exploited in almost all the texts. The results for Story and Analyst's assessment show that all the texts reach their full communicative potential for these markers. The count for Market position indicates that the majority of the texts (20) offer sufficient, although not a lot of information about how a company is positioned in the market. In one text, the Market position is not mentioned at all. In 15 texts, the analysts inform the investors well about the Management; in 11 texts, the information is satisfactory; and in 2 texts, the investor is not informed about Management issues of the company at all. Half the texts (14) realized their communicative potential in terms of Market trends; 10 texts offer sufficient, yet not particularly detailed information about the development of the company’s industry; and in 4 texts the trends in the industry are not mentioned. Whereas the PE ratio of the company is discussed in comparison with peers (9 texts) or mentioned (19 texts) in all the analysts’ updates, the figures for the DCF are not mentioned in 15 texts. The investor is informed in 7 texts how the company’s DCF relates to its peers’ DCF; in 6 texts the figures for the DCF are simply mentioned (Table 3). Table 2 Results of the comprehensibility markers.

Ambiguity Density Abbreviations Specialist terms

Fulfilled

Accidental problem

Systematic problem

19 17 0 0

5 6 0 0

4 5 28 28

Table 3 Results of the comprehensiveness markers.

Story Market position Management Market trends Analyst’s assessment DCF PE ratio

Fulfilled

Accidental problem

Systematic problem

28 7 15 14 28 7 9

0 20 11 10 0 6 19

0 1 2 4 0 15 0

5. Discussion and actions From a practical perspective, the pragmatic text analysis of equity analysts’ company updates has led to two important findings: the authors show considerable content competence, but their awareness of language use and target audience deserves elaboration. – The results for the markers of comprehensiveness showed that the examined texts achieve their communicative potential fully or partially, offering the investor sufficient data and information about a company. All the texts inform the investor well about the company’s Story and the Analyst's assessment of the firm. The information about Market position, Management, and Market trends is not as broad, however. Many texts only partially realize their communicative potential regarding these text markers. This could be due to the fact that the analysts are very familiar with the company’s framework conditions so they do not deem it necessary to discuss these matters in detail, but rather focus on current news and their own assessments. The results for the marker DCF indicate that this Absolute valuation method is not an integral measure to assess companies across all industries – the DCF was not mentioned in more than half of the examined texts – whereas the marker PE ratio was discussed (9 texts) or mentioned (19 texts) in all equity analysts’ company updates. – The results for the complex text markers of comprehensibility, Ambiguity and Density, demonstrate that the equity analysts’ company updates realize their communicative potential fully or partially in that respect. A probable explanation is that all the texts undergo document cycling (feedback from team members and copy editing), which eliminates ambiguity and very dense formulations. In contrast, the findings for the text markers Abbreviations and Specialist terms indicate that none of the examined texts achieves their communicative potential: many unexplained Abbreviations and Specialist terms impede the readers’ understanding of the texts even though they passed through document cycling as well. What appears rather surprising at first glance can be explained in the organization itself: given that all parties involved in the document cycling are familiar with the financial jargon and the Specialist terms in the various industries, they probably do not question or object to these expressions. In summary, the analysts’ texts that were examined achieve their communicative potential and can be considered a good basis for an investment decision with respect to their comprehensiveness. However, there are good reasons to expect that, for the investor, the financial analysts’ texts are not fully comprehensible because they are permeated with various unexplained Abbreviations and Specialist terms. The investor thus cannot access the information offered or can only do so partially, with the result that the objective of the analysts’ texts – to serve as a foundation for sound investment decisions – is basically not achieved. However, counting the number of lexical items (such as Specialist terms and Abbreviations) only makes sense if researchers are able to explain why these micro features matter from a macro view.

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Such an explanation requires contextual approaches, informed by both theoretical and practical knowledge. This is what traditional comprehensibility studies in the field of financial communication have neglected so far. Linguistic indicators, as simple as they may seem, need to be explained carefully and from complementary perspectives regarding their relevance in context. This sound contextualization is the theoretical value that pragmatic text analysis adds to the investigation of socially relevant phenomena such as cross-disciplinary communication in the financial community. From a practical point of view, the knowledge generated allows stakeholders to derive which measures will lead to an improvement of the communicative potential of financial analysts’ texts. Analysts do not have to pack more information into their texts in order to offer investors a solid foundation for a sound investment decision, but there are strong empirical arguments – such as the markers investigated here – for them to write their texts with a heightened awareness for comprehensibility. In a bottom-up approach, research-based writing coaching can point out critical writing situations and situative good practices to these professional writers. In a top-down approach, organizations need to be made aware that, in cross-disciplinary communication, different customer groups need different texts – even when costs have to be kept to a bare minimum – and that the collaboration of professional writers and writing researchers can enhance the communicative potential of an organization’s texts (Whitehouse-Furrer & Perrin, 2015 forthcoming). References Bazerman, C. (1994). Systems of genres and the enactment of social intentions. In A. Freedman, & P. Medway (Eds.), Genre and the new rhetoric (pp. 79–101). London: Taylor & Francis. Bazerman, C., & Devitt, A. (2014). Introduction. Genre perspectives in text production research. In E.-M. Jakobs, & D. Perrin (Eds.), Handbook of writing and text production (Vol. 10) (pp. 257–261). New York et al.: De Gruyter. Brun, G., & Hirsch Hadorn, G. (2009). Textanalyse in den Wissenschaften. Inhalte und Argumente analysieren und verstehen. Zürich: vdf Hochschulverlag. Bucher, S. (2011). Was steckt hinter den Empfehlungen des Researchs der Zürcher Kantonalbank? In Dokumentation des Aktienresearchs der Zürcher Kantonalbank. Zürich. Carter, B., & Sealey, A. (2009). Reflexivity, realism and the process of casing. In D. Byrne, & C. C. Ragin (Eds.), The SAGE handbook of case-based methods (pp. 69–83). London: Sage. Denzin, N. K. (2012). Triangulation 2.0. Journal of Mixed Methods Research, 6(2), 80–88. Döring, C. (2000). Finanzpresse und Finanzanalysten. In L. Rolke, & V. Wolff (Eds.), Finanzkommunikation. Kurspflege durch Meinungspflege. Die neuen Spielregeln am Aktienmarkt (pp. 118–127). Frankfurt am Main: F.A.Z.-Institut für Managementund Medien-information. Drinkmann, A., & Groeben, N. (1989). Metaanalysen für Textwirkungsforschung. Methodologische Varianten und inhaltliche Ergebnisse im Bereich der Persuasionswirkung von Texten. Weinheim: Deutscher Studien Verlag. Duff and Phelps Inc. (1976). A management guide to better financial reporting. Ideas for strengthening reports to shareholders and the financial analyst’s perspective of financial reporting practices. Arthur Andersen & Co.

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