Research in International Business and Finance 66 (2023) 102031

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Research in International Business and Finance

journal homepage: www.elsevier.com/locate/ribaf

News sentiment and CEO retirement: The impact on firm

performance and risk
Ziqing Gao a, Min Hua b, Heng Liu b, Chao Yan c, *

a
School of Economics and Management, Harbin University, China
b
Faculty of Professional Finance and Accountancy, Shanghai Business School, China
c
Center for Quantitative Economics, Jilin University, China

A R T I C L E I N F O A B S T R A C T

JEL Classification: A growing number of empirical studies on news sentiment offer important insights into corporate
G14 behavior. Based on signaling and information content theory, we examine whether news articles
G30 are an information source that can reveal or predict firm performance. Furthermore, previous
Keywords: studies suggest that CEOs’ heterogeneous individual-specific characteristics have a significant
News sentiment impact on firms’ performance and decisions. Here, we expand the literature by exploring the
CEO retirement
impact of near-retirement CEO characteristics on firm performance and risk outcomes. Our paper
Firm performance
indicates that near-retirement CEOs are associated with better firm performance but less risk-
Risk-taking
taking behavior, which is consistent with the view of myopic loss aversion and “legacy conser­
vation” concerns.

1. Introduction

Thousands of news announcements are released around the world every day. The current empirical literature identifies the pro­
found impacts of news sentiment on market activity (Das and Chen, 2007; Tetlock, 2007; Wright and Swidler, 2023). Moreover, a
growing number of empirical studies on news sentiment offer important insights into corporate behavior, such as firm capital raising
(Liu et al., 2014) and leverage adjustments (Dang et al., 2019), as well as CEO compensation components (Kuhnen and Niessen, 2012),
performance (Ahmad et al., 2013), and risk (Smales, 2016). With advancements in technology, it has become possible to use textual
analysis to examine news content (Samuels and Mcgonical, 2020). However, due to the broadness and depth of Chinese characters, it is
more difficult to understand than other languages (Yan et al., 2014). Loughran and McDonald (2011) argue that much prior research
fails to accurately reflect the tone of the financial text. To avoid interpretation biases in the analysis of news content, similar to previous
studies that use software to perform textual analysis (Li, 2010; Huang et al., 2014; Costola et al., 2023), we use the Google machine
learning platform to quantify the content in news. Based on signaling and information content theory, we know that news is one of the
information sources that can reveal or predict firm performance. Under ideal circumstances, news sentiment can serve as an accurate
signal of the company’s performance. Positive (negative) news sentiment indicates that the company performs better (worse) or has
lower (more) risk. Here, we extend this line of study by examining the impact of news sentiment on firms’ performance and risk levels
in the Chinese market.
In order to boost stock prices or achieve specific purposes, companies may take various approaches to manipulate the news. For

* Correspondence to: Center for Quantitative Economics, Jilin University, Changchun 130012, China.
E-mail address: yanchao1985@jlu.edu.cn (C. Yan).

https://doi.org/10.1016/j.ribaf.2023.102031
Received 1 February 2022; Received in revised form 20 June 2023; Accepted 24 June 2023
Available online 29 June 2023
0275-5319/© 2023 Elsevier B.V. All rights reserved.
Z. Gao et al. Research in International Business and Finance 66 (2023) 102031

example, managers may deliberately distort the readability of disclosed information to hide poor performance (Asay et al., 2018). Such
measures increase information asymmetry and make it harder to determine the actual state of the company by analyzing news an­
nouncements. Broadly speaking, a CEO’s primary responsibilities include making major decisions, managing the overall operations
and resources of a company, and acting as the main point of communication between the board of directors and corporate operations.
The personal characteristics of CEOs have a significant impact on firm performance and risk-taking (Nelson, 2005; Coles et al.,
2006). CEOs with a shorter remaining tenure are likely to affect firms in numerous ways and for CEOs who are approaching retirement
age (i.e., near-retirement CEOs), the effects are more pronounced (Gibbons and Murphy, 1992). The existing literature has explored the
behavior and characteristics of near-retirement CEOs, such as myopic loss aversion (Benartzi and Thaler, 1999) and loss of power
(Romano et al., 2019; Bilgili et al., 2020). Near-retirement CEOs are reluctant to engage in excessively risky activities (Matta and
Beamish, 2008) that may lead to a lower firm value (Antia et al., 2010; Rachpradit et al., 2012). Here, we expand the literature by
exploring the impact of near-retirement CEO characteristics on firm performance and risk outcomes. This paper thus determines
whether the near-retirement CEOs are a possible explanation for changes in firm performance and risk level.
To examine our conjecture, we use 166,234 unique news articles related to Chinese listed firms to explore the impact of news
sentiment on firm performance and risk from 2007 to 2017. Following the previous studies of Sheng and Lan (2019) and Yu et al.
(2013) that use software for textual analysis, we use Google Natural Language API to explore the news content of Chinese listed
companies. Our analysis reveals that the sentiment score of released news articles helps predict firm performance and the level of risk
after controlling for a set of control variables suggested in the literature (e.g., Faccio et al., 2016; Lee et al., 2021). Our results further
provide evidence that the predictive outcome of news sentiment can be driven by near-retirement CEOs. Consistent with the “legacy
conservation” theory, we show that CEOs approaching retirement are risk-averse and tend to maintain the firm’s financial performance
(Matta and Beamish, 2008; Kang, 2016).
Our paper provides several contributions to the existing literature. First, unlike the prior news sentiment literature, which has
largely focused on the relationship between news sentiment and factors in the financial market (Mitchell and Mulherin, 1994; Alanyali
et al., 2013; Yang et al., 2015), our paper not only provides new insight into the impact of released news at the firm level but also uses
Google Natural Language API to explore the Chinese news content. The findings show that news sentiment can forecast firms’ per­
formance and predict their risk level since firms with higher news sentiment scores are associated with higher firm performance and
lower levels of risk. A further contribution is that our work extends and complements earlier analyses of the role of near-retirement
CEOs in the company. Previous studies suggest that CEOs’ heterogeneous individual-specific characteristics have a significant
impact on firms’ performance and decisions (e.g., Bertrand and Schoar, 2003; Nelson, 2005; Bertrand, 2009). Our paper indicates that
near-retirement CEOs are associated with better firm performance but less risk-taking behavior, which is consistent with myopic loss
aversion (Benartzi and Thaler, 1999).
The remainder of the paper is organized as follows. Section 2 describes the data, sample selection, and summary statistics. The main
findings are presented in Section 3. In Section 4, we perform the propensity score matching. Section 5 concludes.

2. Data and descriptive statistics

2.1. Sample construction

We start with all firm-year–quarter observations in the China Stock Market & Accounting Research (CSMAR) quarterly files be­
tween 2007 and 2017. We then collect all the released news about listed Chinese firms and CEOs’ biographic information with CSMAR.
All the firms in the financial or utilities industries are excluded. Our final sample includes 166,234 released news articles involving
1417 unique companies from 2007 to 2017.

2.2. News sentiment

News sentiment data are obtained over the period from Jan 1, 2007, to Dec 31, 2017. Unlike previous studies that analyze the
sentiment of news text (Smales, 2016; Audrino et al., 2020), we employ Cloud Natural Language API to capture the sentiment score of
released news.1 Our news scores obtained from the measurement range from − 1–1, indicating whether the news is positive (larger
than 0), neutral (equal to 0), or negative (smaller than 0).

2.3. Firm performance and risk-taking

Following the prior literature, we use return on assets (ROA) and return on equity (ROE) as two proxies for firm performance (Meng
et al., 2011). For firm risk level, we consider three measures. Consistent with Faccio et al. (2016) and Lee et al. (2021), we calculate
Idiosyncratic Risk in two steps. We first regress daily stock returns on daily market returns. Idiosyncratic Risk is then obtained as the
standard deviation of residuals from this regression. Our second measure, σ (ROA), is the volatility of the firm’s return on assets, which
captures the riskiness of investment decisions. The third risk measure we develop is Total Leverage, which is defined as the ratio of
financial debt divided by the sum of financial debt plus equity.

1
Our measurement of news sentiment is through Cloud Natural Language API (https://cloud.google.com/natural-language/).

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Z. Gao et al. Research in International Business and Finance 66 (2023) 102031

Table 1
Summary statistics.
Variable Mean SD Min P50 Max N

ROA 0.0726 0.0775 − 0.2350 0.0679 0.2309 176,553

ROE 0.0590 0.0858 − 0.3659 0.0506 0.2247 179,243
Idiosyncratic Risk 0.0230 0.0082 0.0062 0.0225 0.0393 179,926
σ(ROA) 0.0312 0.0294 0.0014 0.0202 0.1144 174,435
Total Leverage 1.6983 1.0525 0.6610 1.2905 5.0578 162,880
News Sentiment 0.2487 0.2018 − 0.4000 0.2778 0.7000 182,966
Retirement CEO 0.1247 0.3304 0.0000 0.0000 1.0000 182,966
CEO Gender 0.9539 0.2097 0.0000 1.0000 1.0000 182,966
FCF 0.1844 0.1491 0.0049 0.1425 0.7240 182,943
Size 22.3314 1.8623 18.6660 21.9617 27.5785 182,933
Tangible Assets 0.0453 0.0498 0.0000 0.0304 0.2944 182,875
Sales Growth 0.4304 0.8059 − 0.8967 0.5059 3.0110 182,282
Private Firm 0.6084 0.4881 0.0000 1.0000 1.0000 182,966
Repeat Number 2.2653 2.1253 1.0000 1.0000 13.0000 182,966

Table 1 reports summary statistics for the main variables in the regression models. The sample includes released news and related companies’ data
that excludes financial firms and regulated utilities. The sample period is 2007–2017. ROA refers to the return on assets. ROE denotes the ratio of
equity to total assets. News Sentiment is the score of news sentiment obtained through the Google machine learning platform. CEO Gender is a dummy
variable equal to 1 if a CEO is male and 0 otherwise. FCF is the ratio of free cash flow to total assets. Size is measured as the natural log of total assets.
Tangible Assets is calculated as the ratio of fixed assets to total assets. Sales Growth represents the quarterly rate of growth of sales. Private Firm is a
dummy variable equal to 1 if a firm is privately owned and 0 otherwise. Repeated Number is the number of released news repeated for each firm.

Table 2
Regressions of firm performance and risk-taking on news sentiment.
Performance Firm risk

(1) (2) (3) (4) (5)

ROA ROE Idiosyncratic Risk σ (ROA) Total Leverage

News Sentiment 0.0147 * ** 0.0107 * ** − 0.0002 * ** − 0.0023 * ** − 0.0772 * **

(22.86) (13.88) (− 2.69) (− 11.92) (− 7.89)
CEO Gender 0.0086 * ** 0.0050 * ** 0.0006 * ** − 0.0076 * ** − 0.0311 *
(7.35) (3.52) (4.17) (− 21.42) (− 1.66)
FCF 0.0790 * ** 0.0417 * ** − 0.0055 * ** − 0.0086 * ** − 1.3188 * **
(52.25) (25.05) (− 31.31) (− 18.06) (− 62.39)
Size − 0.0066 * ** − 0.0068 * ** − 0.0028 * ** − 0.0002 * * 0.1340 * **
(− 26.96) (− 23.32) (− 92.58) (− 2.33) (35.69)
Tangible Assets − 0.0619 * ** − 0.0374 * ** − 0.0142 * ** 0.0183 * ** 0.9044 * **
(− 13.36) (− 6.70) (− 24.40) (12.94) (12.44)
Sales Growth 0.0164 * ** 0.0076 * ** 0.0005 * ** 0.0016 * ** − 0.0532 * **
(43.04) (17.44) (10.36) (13.38) (− 9.40)
Private Firm − 0.0113 * ** − 0.0096 * ** − 0.0033 * ** 0.0041 * ** 0.0787 * **
(− 31.92) (− 22.69) (− 74.81) (38.13) (14.43)
Repeat Number − 0.0000 0.0003 * ** 0.0001 * ** − 0.0000 * − 0.0123 * **
(− 0.22) (3.67) (16.15) (− 1.64) (− 13.14)
Constant 0.1944 * ** 0.1605 * ** 0.0883 * ** 0.0408 * ** − 1.3112 * **
(35.24) (24.30) (127.64) (24.25) (− 15.29)
N 176,096 178,624 179,289 173,963 162,317
Quarter fixed effects Yes Yes Yes Yes Yes
Firm fixed effects Yes Yes Yes Yes Yes
Adj. R2 0.563 0.494 0.387 0.717 0.513

Table 2 displays the regressions of firm performance and risk-taking on news sentiment. Our main dependent variable is News Sentiment. CEO Gender
is a dummy variable equal to 1 if a CEO is male and 0 otherwise. FCF is the ratio of free cash flow to total assets. Size is measured as the natural log of
total assets. Tangible Assets is calculated as the ratio of fixed assets to total assets. Sales Growth represents the quarterly rate of growth of sales. Private
Firm is a dummy variable equal to 1 if a firm is privately owned and 0 otherwise. Repeated Number is the number of released news repeated for each
firm. The t-statistics are reported in parentheses and are robust to heteroskedasticity, and standard errors are clustered at the firm level. ***, **, and *
indicate statistical significance at the 1 %, 5 %, and 10 % levels, respectively.

2.4. Control variables

Following prior studies such as Faccio et al. (2016) and Lee et al. (2021), we control for several CEO-level characteristics and
firm-level characteristics that might affect risk-taking. CEO Gender is a dummy variable equal to 1 if a CEO is male and 0 otherwise. FCF
is the ratio of free cash flow to total assets. Size is measured as the natural log of total assets. Tangible Assets is calculated as the ratio of
fixed assets to total assets. Sales Growth represents the quarterly rate of growth of sales. Private Firm is a dummy variable equal to 1 if a
firm is privately owned and 0 otherwise. Repeated Number is the number of released news repeated for each firm. To reduce the effects

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of outliers, all control variables are winsorized at the 1st and 99th percentiles.

2.5. Summary statistics

The descriptive statistics of the variables included in the regression panel are reported in Table 1. On average, the ROA and ROE of
the companies in our final sample are 7.26 % and 5.9 %, respectively. In terms of other firm characteristics, the average cash flow in
our sample is 18.44 %, tangible assets account for 4.53 % of total assets, and the average sales growth ratio is 43.04%. These char­
acteristics are consistent with the existing research regarding listed firms in China (Firth et al., 2012).

3. Empirical results

3.1. News sentiment, firm performance, and risk-taking

Media sentiment conveys updated information about the company’s earnings or potential uncertainty. The idea behind our profit
and risk predictability test is that sentiment information in company news articles can measure aspects of the company’s business
environment that are hard to quantify. The descriptions in many news articles may gain some explanatory power from qualitative
insights (Buckman et al., 2020). Based on the relevant news sentiment literature, we start the quarterly analysis by running the panel
OLS estimation, which links the news sentiment to a company’s performance and risk. The following model is estimated as follows:
Yi,t+1 = α + β1 News Sentimenti,t + γXi,t + Di + Quartert + εi,t (1)

where our dependent variable, Yi,t+1 , is the firm’s performance and risk-taking as measured by ROA, ROE, Idiosyncratic Risk, and the
volatility of firm-level profitability (σ(ROA)), respectively. Our main variable is News Sentiment. Xi,t represents the control variables
discussed in Section 2.4. We also control for firm fixed effects, denoted as Di , and quarterly fixed effects, denoted as Quarter.
Table 2 presents the estimation findings by considering the news sentiment score as the independent variable after controlling for
other factors. The results across regressions show that the coefficients of news sentiment score in risk and return estimations are
statistically significant but with opposite signs. Columns (1) and (2) of Table 2 show the use of OLS regression to estimate the power of
the news sentiment score to predict the quarterly returns of Chinese listed companies. We find that the lagged news sentiment scores
significantly and positively affect the ROA and ROE of listed firms in China (significant at the 1% level) over the following quarter. The
key result is that news sentiment can signal the company’s future earnings, no matter whether we use ROA or ROE as the measure.
These data indicate that the news sentiment score is a strong positive indicator of profit performance among listed firms in China.
Additionally, Table 2 reports the estimation of the influence of news sentiment score on quarterly firm risk using three OLS re­
gressions. The three dependent variables are Idiosyncratic Risk, σ (ROA), and Total Leverage. In the three estimates involving risk, all
coefficients of news sentiment score are negative and statistically significant at the 1 % level, which implies that with a higher level of
news sentiment, companies are likely to face less uncertainty. The logic behind the media sentiment being able to forecast the
corporate risk is that increased sentiment scores in news can reflect factors related to a firm’s potentially lower operational volatility
that are difficult to quantify in the company’s business information environment.
As expected, several control variables show strong explanatory power for company return and risk. For example, size, cash flows,
and sales growth are all powerful explanatory indicators in these regressions.

3.2. Near-retirement CEO effects

Our baseline results indicate that news sentiment has a positive association with firm performance but has a negative association
with the level of risk in the companies. In this section, we further investigate how news sentiment influences firm performance and
level of risk. Several studies show that heterogeneity in CEO characteristics is the key driver of firm performance and risk-taking
policies (Nelson, 2005; Coles et al., 2006). We thus extend this line of research by examining whether CEOs approaching retire­
ment have explanatory power in the impact of news sentiment on firm performance and risk level.
Most research focusing on the “CEO horizon problem” consistently suggests that the career horizon of CEOs has a significant in­
fluence on corporate long-term strategic decisions (Matta and Beamish, 2008; McClelland et al., 2012). For example, McClelland et al.
(2012) argue that younger CEOs who have relatively longer career horizons tend to take risky strategies to boost future firm per­
formance, while CEOs with shorter career horizons are risk-averse for the purpose of career security. Similarly, some empirical findings
indicate that CEOs who are approaching retirement are reluctant to embrace risky strategic investments (Smith and Watts, 1982;
Dechow and Sloan, 1991; Gibbons and Murphy, 1992; Murphy and Zimmerman, 1993; Cheng, 2004). One possible explanation is that
retiring CEOs hope to preserve their value of assets (which are partly linked to the company’s market value) from losses and they thus
prefer to maintain the firm’s financial performance in the final years of their career. Many studies attribute this phenomenon to “legacy
conservation”, that is, CEOs nearing retirement increasingly avoid risky policies as they are concerned that these could be damaging to
the firm’s performance in the short term (Sonnenfeld, 1986; Zajac and Westphal, 1996; Matta and Beamish, 2008). Building on these
empirical findings, we conjecture that near-retirement CEOs make less risky decisions, thus leading to better firm performance.
To investigate how news sentiment leads to better firm performance and lower levels of risk, we condition the news sentiment
effects on whether the CEO is near retirement. If the proposed explanation holds, the news sentiment effect should be larger for firms
with CEOs approaching retirement; Otherwise, the measure of CEO retirement should have no impact on the effect of news sentiment

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Table 3
News sentiment and firm performance and risk-taking: The effect of near-retirement CEOs.
Performance Firm risk-taking

(1) (2) (3) (4) (5)

ROA ROE Idiosyncratic Risk σ (ROA) Total Leverage

News Sentiment 0.0140 * ** 0.0096 * ** − 0.0002 * − 0.0020 * ** − 0.0662 * **

(20.61) (11.82) (− 1.93) (− 9.56) (− 6.38)
CEO Retirement 0.0021 * ** 0.0003 − 0.0006 * ** − 0.0017 * ** − 0.0698 * **
(3.00) (0.32) (− 7.00) (− 7.77) (− 6.42)
CEO Retirement*News Sentiment 0.0061 * ** 0.0094 * ** − 0.0005 * * − 0.0032 * ** − 0.0998 * **
(3.07) (3.97) (− 2.00) (− 5.39) (− 3.33)
CEO Gender 0.0092 * ** 0.0055 * ** 0.0005 * ** − 0.0081 * ** − 0.0486 * **
(7.84) (3.83) − 3.32 (− 22.54) (− 2.58)
FCF 0.0791 * ** 0.0418 * ** − 0.0055 * ** − 0.0087 * ** − 1.3204 * **
(52.32) (25.10) (− 31.45) (− 18.21) (− 62.50)
Size − 0.0068 * ** − 0.0069 * ** − 0.0028 * ** − 0.0000 0.1390 * **
(− 27.56) (− 23.63) (− 90.72) (− 0.58) (36.82)
Tangible Assets − 0.0630 * ** − 0.0383 * ** − 0.0139 * ** 0.0191 * ** 0.9291 * **
(− 13.59) (− 6.85) (− 24.05) (13.48) (12.78)
Sales Growth 0.0164 * ** 0.0076 * ** 0.0005 * ** 0.0015 * ** − 0.0537 * **
(43.08) (17.45) (10.35) (13.29) (− 9.48)
Private Firm − 0.0114 * ** − 0.0096 * ** − 0.0033 * ** 0.0042 * ** 0.0811 * **
(− 32.08) (− 22.77) (− 74.54) (38.51) (14.86)
Repeat Number − 0.0000 0.0003 * ** 0.0001 * ** − 0.0000 − 0.0121 * **
(− 0.34) (3.62) (16.36) (− 1.35) (− 12.94)
Constant 0.1978 * ** 0.1630 * ** 0.0876 * ** − 0.0011 * ** − 1.4004 * **
(35.73) (24.60) (126.16) (− 9.58) (− 16.28)
N 176,096 178,624 179,289 173,963 162,317
Quarter fixed effects Yes Yes Yes Yes Yes
Firm fixed effects Yes Yes Yes Yes Yes
Adj. R2 0.563 0.495 0.388 0.718 0.514

Table 3 examines the impact of near-retirement CEOs on news sentiment effects. CEO Gender is a dummy variable equal to 1 if a CEO is male and
0 otherwise. FCF is the ratio of free cash flow to total assets. Size is measured as the natural log of total assets. Tangible Assets is calculated as the ratio
of fixed assets to total assets. Sales Growth represents the quarterly rate of growth of sales. Private Firm is a dummy variable equal to 1 if a firm is
privately owned and 0 otherwise. Repeated Number is the number of released news repeated for each firm. The t-statistics are reported in parentheses
and are robust to heteroskedasticity, and standard errors are clustered at the firm level. ***, **, and * indicate statistical significance at the 1 %, 5 %,
and 10 % levels, respectively.

on firms’ performance and risk-taking.

To examine the impact of near-retirement CEOs, we use a dummy variable to proxy for near-retirement CEOs, which equals 1 if a
male CEO is aged between 55 and 60 or a female CEO age is aged 50–55 years, and 0 otherwise.2 The regression to estimate the effect of
near-retirement CEOs is shown in Eq. (2):
Yi,t+1 = α + β1 News Sentimenti,t + β2 News Sentimenti,t ∗ Retirementi,t + Retirementi,t + γXi,t + Di + Quartert + εi,t (2)

where News Sentimenti,t is the average score of news sentiment for each firm. Retirementi,t is a dummy variable that equals 1 if a male
CEO age is 55–60 or a female CEO age is 50–55, and 0 otherwise. Control variables include firm-level and CEO-level characteristics, as
discussed in Section 2.4. We also control for firm fixed effects, denoted as Di , and quarterly fixed effects, denoted as Quartert .
The empirical evidence is presented in Table 3. The news sentiment effect on firm performance and risk-taking is influenced by
CEOs being near retirement. Compared to firms led by CEOs not approaching retirement, firms led by CEOs approaching retirement
have better performance and a lower level of risk, which is consistent with myopic loss aversion (Benartzi and Thaler, 1999).
From the results shown in Columns (1)–(2) of Table 3, we find that the interaction of news sentiment and near-retirement CEOs
implies a positive and significant relationship with firm performance. In Columns (3)–(4), the coefficients of the interaction term
negatively and significantly correlate with Idiosyncratic Risk and the volatility of ROA. Intuitively, it shows that the CEOs’ motivation
to maintain their reputations in their last years of employment is larger at firms led by CEOs who are nearing retirement, which
explains the performance and risk-aversion strategy. Overall, firms led by near-retirement CEOs exhibit performance and risk-taking
behavior consistent with myopic loss aversion.

4. Propensity score matching

Our results imply myopic loss aversion of CEOs in their last years of employment by showing better firm performance and less risk-
taking behavior. To examine the robustness of our findings, we create matched samples by matching treatment firms to control firms

2
The current statutory retirement age in China is 60 years for male workers and 50 years for female workers.

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Table 4
Propensity score matching estimates.
Performance Firm risk

(1) (2) (3) (4) (5)

ROA ROE Idiosyncratic Risk σ (ROA) Total Leverage

Treatment Control Treatment Control Treatment Control Treatment Control Treatment Control

News Sentiment 0.0132 * ** 0.0092 * ** 0.0110 * ** 0.0071 * ** − 0.0005 * * − 0.0003 − 0.0014 * ** − 0.0006 − 0.1006 * ** − 0.0690 * *
(8.97) (5.82) (6.04) (3.70) (− 2.46) (− 1.13) (− 3.89) (− 1.02) (− 4.55) (− 2.36)
CEO Gender − 0.0142 * ** − 0.0096 * * − 0.0239 * ** − 0.0158 * ** − 0.0036 * ** 0.0003 − 0.0074 * ** − 0.0071 * ** 0.2206 * ** − 0.0440
(− 4.05) (− 2.56) (− 5.56) (− 3.42) (− 6.88) (0.53) (− 8.94) (− 5.48) (4.32) (− 0.59)
FCF 0.1239 * ** 0.0660 * ** 0.1297 * ** 0.0569 * ** − 0.0057 * ** − 0.0047 * ** 0.0146 * ** − 0.0094 * ** − 1.8434 * ** − 1.4976 * **
(27.37) (14.36) (23.15) (10.17) (− 8.30) (− 6.96) (13.45) (− 5.73) (− 27.24) (− 17.47)
Size − 0.0084 * ** − 0.0046 * ** − 0.0209 * ** − 0.0063 * ** − 0.0022 * ** − 0.0034 * ** 0.0033 * ** − 0.0004 * 0.1520 * ** 0.0957 * **
(− 10.06) (− 6.60) (− 18.78) (− 7.31) (− 17.81) (− 33.04) (16.60) (− 1.83) (11.18) (7.18)
Tangible Assets − 0.1074 * ** − 0.1388 * ** − 0.0499 * ** − 0.1322 * ** − 0.0149 * ** − 0.0116 * ** 0.0576 * ** − 0.0026 − 0.1596 1.1463 * **
6

(− 8.66) (− 10.32) (− 3.28) (− 7.99) (− 7.97) (− 5.91) (19.64) (− 0.56) (− 0.83) (4.46)
Sales Growth 0.0080 * ** 0.0182 * ** 0.0038 * ** 0.0073 * ** − 0.0003 * 0.0011 * ** 0.0005 * * 0.0005 − 0.1415 * ** − 0.1083 * **
(7.94) (16.82) (2.96) (5.51) (− 1.70) (6.88) (2.21) (1.35) (− 8.80) (− 5.33)
Private Firm − 0.0129 * ** − 0.0102 * ** − 0.0074 * ** − 0.0068 * ** − 0.0027 * ** − 0.0040 * ** 0.0003 − 0.0003 0.1398 * ** 0.0894 * **
(− 11.23) (− 10.70) (− 5.24) (− 5.86) (− 15.44) (− 28.70) (1.04) (− 0.84) (8.11) (5.00)
Repeat Number − 0.0002 0.0008 * ** − 0.0001 0.0003 0.0002 * ** 0.0001 * ** − 0.0000 − 0.0002 * ** − 0.0097 * ** 0.0036
(− 1.35) (4.47) (− 0.37) (1.32) (10.46) (4.68) (− 0.65) (− 3.00) (− 5.10) (1.14)

Research in International Business and Finance 66 (2023) 102031

Constant 0.2734 * ** 0.1779 * ** 0.5081 * ** 0.1764 * ** 0.0784 * ** 0.1031 * ** − 0.0448 * ** 0.0487 * ** − 1.9089 * ** − 0.4437
(14.61) (10.80) (20.31) (8.78) (27.77) (42.44) (− 10.11) (8.53) (− 6.26) (− 1.41)
N 19,471 19,449 19,146 19,277 19,231 19,308 19,266 19,144 17,779 17,908
Quarter fixed effects Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Firm fixed effects Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Adj. R2 0.800 0.669 0.713 0.631 0.566 0.528 0.888 0.753 0.706 0.626

Table 4 presents the propensity score matching estimation results. CEO Gender is a dummy variable equal to 1 if a CEO is male and 0 otherwise. FCF is the ratio of free cash flow to total assets. Size is
measured as the natural log of total assets. Tangible Assets is calculated as the ratio of fixed assets to total assets. Sales Growth represents the quarterly rate of growth of sales. Private Firm is a dummy
variable equal to 1 if a firm is privately owned and 0 otherwise. Repeated Number is the number of released news repeated for each firm. The t-statistics are reported in parentheses and are robust to
heteroskedasticity, and standard errors are clustered at the firm level. ***, **, and * indicate statistical significance at the 1%, 5%, and 10% levels, respectively.
Z. Gao et al. Research in International Business and Finance 66 (2023) 102031

using a propensity score methodology to establish causality. Following Serfling (2016), we include Log Assets, Fixed Assets, and
Market-to-Book as the controls to obtain propensity scores. We then apply the nearest-neighbor method to ensure the closest propensity
score between firms with near-retirement CEOs (treatment group) and firms with non-near-retirement CEOs (control group). When a
treatment firm is matched to multiple control firms, we only retain the pair with the smallest difference in propensity scores between
the two firms.
To verify the effect of the near-retirement CEOs on the relation between news sentiment and corporate performance and risk, we
estimate the effect of news sentiment on firm performance and risk-taking behavior for the firms with near-retirement CEOs (treatment
sample) and firms with non-near-retirement CEOs (control sample).
The results reported in Table 4 support our argument that near-retirement CEOs enlarge the news sentiment effects by showing
better firm performance and lower risk-taking behavior than non-retirement CEOs. From Columns (1) to (4), we find that firms with
better news sentiment significantly improve the firms’ performance and firms with near-retirement CEOs outperform their counter­
parts. The results of firm risk are shown in Columns (5) to (10) and confirm our previous findings that CEOs approaching retirement are
risk-averse and thereby lead to a lower level of risk in the firms.

5. Conclusion

This paper examines the impact of news sentiment on firm performance and risk-taking by using Google Natural Language API to
obtain novel news data of Chinese listed companies. Our research presents two main findings. Firstly, firms with higher news sentiment
scores are associated with better firm performance and a lower level of risk. Secondly, we provide evidence that near-retirement CEOs
have explanatory power for the variations in firm performance and risk-taking behavior after news articles are released. These results
are robust to propensity score matching tests, consistent with the view of myopic loss aversion and legacy conservation concerns. Our
research increases the understanding of the roles of news sentiment and CEOs approaching retirement in affecting firms’ behavior.

CRediT authorship contribution statement

Ziqing Gao: Conceptualization, Writing - review & editing. Min Hua: Formal analysis, Data curation, Software, Writing - review &
editing. Heng Liu: Formal analysis, Validation, Writing - original draft, Writing - review & editing. Chao Yan: Conceptualization,
Methodology, Writing - review & editing., Validation.

Data availability

Data will be made available on request.

Acknowledgements

This work was supported by the Ministry of Education Project of Humanities and Social Sciences (No. 21YJC790136) and Social
Sciences Fund of Jilin Province (No. 2021B82).

Appendix

Variable Definition

News Sentiment News Sentiment is the average score of news sentiment for each firm obtained from Cloud Natural Language API
ROA ROA is total profit divided by total assets
ROE ROE is net profit divided by the balance of shareholders’ equity
Idiosyncratic We first regress daily stock returns on daily market returns. Idiosyncratic Risk is then obtained as the standard deviation of residuals from this
Risk regression.
σ(ROA) σ(ROA) is the volatility of the firm’s return on assets
Total Leverage Total Leverage is defined as the ratio of financial debt divided by the sum of financial debt plus equity
CEO Gender CEO Gender is a dummy variable equal to 1 if a CEO is male and 0 otherwise
FCF Free cash flow (FCF) is the ratio of free cash flow to total assets
Size Size is measured as the natural log of total assets
Tangible Assets Tangible Assets is calculated as the ratio of fixed assets to total assets
Sales Growth Sales Growth represents the quarterly rate of growth of sales
Private Firm Private Firm is a dummy variable equal to 1 if a firm is privately owned and 0 otherwise
Repeat Number Repeated Number is the number of released news repeated for each firm

7
Z. Gao et al. Research in International Business and Finance 66 (2023) 102031

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