Bridging sentiment and finance: An exploration of BOD statements and bank ratios in Jordan

Abstract

Purpose: This study explores the intricate interplay between sentiment extracted from Board of Directors (BOD) statements and the traditional financial metrics of banks. It investigates the relationship between a bank’s financial performance, measured by various financial ratios, and the sentiment expressed in BOD statements.

Design/methodology/approach: Drawing from a dataset encompassing BOD statements from 15 Jordanian banks spanning 2017 to 2021, sentiment analysis techniques are employed to derive sentiment scores. These scores are then juxtaposed with principal components distilled from financial metrics to examine their predictive relationship.

Findings: Preliminary findings reveal significant non-linear patterns between Hu and Liu’s (2004) sentimental analysis (Lui_sen), the Data Science Lab’s (n.d.) multilingual sentiment tool (multi_sen), and the principal components. A subsequent random-effects panel regression further elucidates these relationships, highlighting the significant influence of specific principal components on sentiment scores. This study provides a compelling case for integrating sentiment analysis with traditional financial indicators, offering a more comprehensive toolkit for evaluating bank performance.

Research limitations/implications: Future research should explore broader datasets across multiple sectors, to validate the generalisability of the findings beyond the banking sector in Jordan.

Practical implications: This research holds implications for investors, analysts, and stakeholders by combining sentiment analysis with traditional financial metrics. It offers deeper insights into the health of banks and the intentions of management. This integrated approach allows stakeholders to make informed decisions and mitigate risks based on a more comprehensive view of banks' financial situations. Additionally, the possibility of real-time sentiment analysis enables the dynamic monitoring of banking institutions' financial health as updated data becomes available.

Social implications: The study’s results are valuable to users of financial information, aiding the Association of Banks and the Central Bank of Jordan in formulating policies for the banking sector. Auditors, consultants, and regulatory bodies in Jordan can also benefit from these insights.

Originality/value: This is the first study exploring the relationship between sentiment extracted from BOD statements and traditional financial metrics in Jordan. It provides novel evidence of this relationship, contributing to the literature on the integration of textual data analysis and financial performance.