ChatGPT and Corporate Policies

This paper uses ChatGPT, a large language model, to extract managerial expectations of corporate policies from disclosures. We create a firm-level ChatGPT investment score, based on conference call texts, that measures managers' anticipated changes in capital expenditures. We validate the ChatGPT investment 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, other predictors, and fixed effects, 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. High-investment-score firms experience significant future abnormal returns adjusted for factors, including the investment factor. We demonstrate ChatGPT's applicability to measure other policies, such as dividends and employment. ChatGPT revolutionizes our comprehension of corporate policies, enabling the construction of managerial expectations cost-effectively for a large sample of firms over an extended period.