ChatGPT and Corporate Policies

TL;DR

This paper develops a ChatGPT-based score to predict firms' future investments and policies from conference call texts, showing it provides valuable incremental information and correlates with actual investment behaviors.

Contribution

It introduces a novel ChatGPT-driven investment score that forecasts future capital expenditures and policies, validated with textual analysis and financial data.

Findings

The score predicts future capital expenditure up to nine quarters ahead.

High-investment-score firms see positive short-term returns and negative long-term abnormal returns.

ChatGPT can measure various corporate policies like dividends and employment.

Abstract

We create a firm-level ChatGPT investment score, based on conference calls, that measures managers' anticipated changes in capital expenditures. We validate the score with interpretable textual content and its strong correlation with CFO survey responses. The investment score predicts future capital expenditure for up to nine quarters, controlling for Tobin's $q$ and other determinants, implying the investment score provides incremental information about firms' future investment opportunities. The investment score also separately forecasts future total, intangible, and R\&D investments. Consistent with theoretical predictions, high-investment-score firms experience significant positive short-term returns upon disclosure, and negative long-run future abnormal returns. We demonstrate ChatGPT's applicability to measure other policies, such as dividends and employment.