The Real Effects of Disclosure Tone: Evidence from Restatements
University of Iowa - Henry B. Tippie College of Business
Concordia University, Montreal - John Molson School of Business
September 12, 2011
This study analyzes whether the tone of financial disclosures affects corporate investments, using texts released by firms that publicly announce restatements of their financial reports. We argue that the tone of restatement texts provides news about restating firms' private information regarding unknown future investment payoffs. We find that restatement tone carries news, because it affects restating firms' and their competitors' abnormal returns at restatement announcements, and changes their information asymmetry. Moreover, we document that news in the restatement tone matters for corporate investments, since it is related to subsequent changes in restating firms' and their competitors' investments.
Number of Pages in PDF File: 55
Keywords: language tone, restatements, investment
JEL Classification: M43, M41, M45
Date posted: July 31, 2010 ; Last revised: March 9, 2012
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