Indore (Madhya Pradesh): A study by the Indian Institute of Management, Indore and BITS Pilani has revealed that confident, forward-looking communication by company leadership can significantly cushion the adverse effects of macroeconomic uncertainty on stock market liquidity.
Published in Finance Research Letters, the study—titled “Managerial Sentiment, Macroeconomic Uncertainty, and Stock Liquidity: Evidence from India”—is co-authored by Prof Saumya Ranjan Dash of IIM- Indore.
Analyzing data from firms listed on the National Stock Exchange (NSE) over the past decade (FY 2014–15 to FY 2023–24), the research provides valuable insights into how managerial tone in corporate disclosures directly impacts investor confidence and market behaviour.
The study employed an AI-powered sentiment analysis model, FinBERT, to evaluate the tone of management commentary in annual reports—particularly the Management Discussion and Analysis (MD&A) sections. The results are compelling: optimistic managerial sentiment mitigates the negative impact of macroeconomic uncertainty on stock liquidity, especially in firms with high information asymmetry, such as small-cap or volatile companies.
“Managerial tone is not just a matter of style—it’s a strategic lever,” said Dash. “In uncertain economic environments, clear and confident corporate communication can provide a stabilizing effect in the markets,” he added.
This finding is particularly relevant for emerging markets like India, where investor trust and institutional maturity are still evolving. According to the study, narrative disclosures can act as a form of informal capital, helping bridge gaps in formal data and boosting investor perception and trust.
From a corporate governance perspective, the study urges boards and audit committees to view MD&A statements not as routine compliance items but as critical communication tools. Well-crafted and optimistic disclosures, the study finds, can reduce bid-ask spreads, dampen speculative behaviour and enhance market resilience during volatile periods.
The research underscores that macroeconomic shocks often reduce stock liquidity by heightening uncertainty in financial forecasting and increasing information gaps. But when management counters these effects with transparent and positive communication, it boosts disclosure quality and helps sustain market participation.
The implications are actionable:
CFOs and Investor Relations teams are advised to invest in communication training and use sentiment analysis tools to refine public disclosures.
Smaller or high-volatility firms can particularly benefit by strategically enhancing the clarity and tone of leadership messaging.
