Why and how companies write letters to shareholders at the Warsaw Stock Exchange

What is it about?

We analyze the content of letters to shareholders in order to identify four classic "types" of texts: positive letters that praise the management, defensive letters prepared in bad times, negative letters that admit the situation is bad, and short-formal letters that show minimum effort on the part of the management. We find that the more concentrated ownership is, the shorter the letters are, which indicates that management invest less effort in communicating with investors. This is particularly visible in companies held by insiders, which tend to produce short, formal letters, devoid of impression management. In contrast, companies controlled by foreign shareholders prepare letters that are longer and which are more likely to present defensive arguments, while institutional non-controlling shareholders favour extensive disclosure.

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Why is it important?

We provide a clear guidance into how letters to shareholders are written: useful for managers and students of the Polish market. In contrast to previous studies of mature markets we find that impression management can be construed as a positive element of financial market development, as it shows a comittment on the part of the management to communicate with shareholders.

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