Abstract

http://ssrn.com/abstract=1287083
 
 

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Management's Tone Change, Post Earnings Announcement Drift and Accruals


Ronen Feldman


Hebrew University of Jerusalem - Jerusalem School of Business Administration

Suresh Govindaraj


Rutgers University - Rutgers Business School - Newark and New Brunswick

Joshua Livnat


New York University

Benjamin Segal


INSEAD - Accounting & Control Area

May 11, 2009


Abstract:     
This study explores whether the management discussion and analysis (MD&A) section of Forms 10-Q and 10-K has incremental information content beyond financial measures such as earnings surprises and accruals. It uses a classification scheme of words into positive and negative categories to measure the tone change in the MD&A section relative to prior periodic SEC filings. Our results indicate that short window market reactions around the SEC filing are significantly associated with the tone change of the MD&A section, even after controlling for accruals and earnings surprises. We show that management’s tone change adds significantly to portfolio drift returns in the window of two days after the SEC filing date through one day after the subsequent quarter’s preliminary earnings announcement, beyond financial information conveyed by accruals and earnings surprises. The drift returns are affected by the ability of the tone change signals to help predict the subsequent quarter’s earnings surprise but cannot be completely attributed to this ability. We also find that the incremental information of management’s tone change depends on the strength of the firm’s information environment.

Number of Pages in PDF File: 65

Keywords: Textual analysis, earnings drift, accruals, earnings surprises, management tone change, MD&A

JEL Classification: G12, G14, M41

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Date posted: October 20, 2008 ; Last revised: July 16, 2009

Suggested Citation

Feldman, Ronen and Govindaraj , Suresh and Livnat, Joshua and Segal, Benjamin, Management's Tone Change, Post Earnings Announcement Drift and Accruals (May 11, 2009). Available at SSRN: http://ssrn.com/abstract=1287083 or http://dx.doi.org/10.2139/ssrn.1287083

Contact Information

Ronen Feldman
Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )
Mount Scopus
Jerusalem, 91905
Israel
Suresh Govindaraj
Rutgers University - Rutgers Business School - Newark and New Brunswick ( email )
1 Washington Park
Room #934
Newark, NJ 07102
United States
Joshua Livnat (Contact Author)
New York University ( email )
44 West 4th Street, Suite 10-76
Stern School of Business
New York, NY 10012-1118
United States
212-998-0022 (Phone)
212-995-4004 (Fax)
Benjamin Segal
INSEAD - Accounting & Control Area ( email )
Boulevard de Constance
77305 Fontainebleau Cedex
France
+33 1 64 69 44 68 (Phone)
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