Applied Textual Analysis in Corporate Finance by Professor Tim Loughran

Prof. Tim Loughran the C.R. Smith Professor of Finance at the University of Notre Dame.

He received a Ph.D. degree in Finance from the University of Illinois (Urbana) and is a CFA Charter holder. His research interests include textual analysis in finance, asset pricing, long-run performance of new issues, and the payment form in corporate acquisitions.

Prof. Loughran is one of the most influential academics especially on the topic of textual analysis in finance. His publications appear in top finance journals such as Journal of Finance, Journal of Financial Economics, among others. His research attracts over 40,000 citations and numerous honors and awards such as Top Scholar by ScholarGPS (placed in the top 0.5% of all scholars worldwide), 2024; MSF Outstanding Faculty, Hillcrest Behavioral Finance Award etc.

Prof. Loughran has been an Associate Editor at several journals including the Journal of Financial Economics, Journal Banking and Finance, Journal of Corporate Finance, Financial Analysts Journal, among others.

Optimal board size is a fundamental question in corporate governance with prior research linking board size to a firm’s complexity. Typically, complexity is coarsely measured by broad spectrum variables. We propose applying a complexity lexicon to the firm’s annual report as a more focused measure of the underlying construct of complexity. The use of complexity terms (i.e., lawsuits, worldwide, mergers, and derivatives) within annual reports significantly predicts board size. Firms requiring more advice from their directors use more accounting, hedging, international, and organizational form words, while companies requiring more monitoring use more finance and legal complexity terms.