Firm's Financial Risk and Risk Sentiment in Annual Reports: Evidence from Companies Listed in the Tehran Stock Exchange Using a Static-and-Dynamic Approach

Investor sentiments are related to investors' subjective beliefs about cash flows and investment risks. The present study was conducted to investigate the impact of the company's financial risk on the risk sentiment of annual reports in companies listed on the Tehran Stock Exchange. To test the hypothese, 130 companies were selected as the sample between 2008 and 2021 and analyzed using the regression method of static and dynamic panel data. To evaluate the company's financial risk, the criteria of financial leverage, company size, and current ratio were used, and the frequency of vocabulary method was used to measure the risk sentiment of annual reports. The results showed that the variables of financial leverage and current ratio have a positive and significant effect on the risk sentiment of annual reports. However, the size of the company has a negative and significant effect on the risk sentiment in annual reports. The results also showed that in addition to the risky tone of the words and sentences in the description of the financial statements, the numbers and figures of the financial statements also affect the investors' risk sentiment.