Abstract

http://ssrn.com/abstract=1960376
 
 

References (48)



 
 

Citations (3)



 


 



Tone Management


Xuan Huang


California State University, Long Beach

Siew Hong Teoh


University of California - Paul Merage School of Business

Yinglei Zhang


The Chinese University of Hong Kong (CUHK) - School of Accountancy

August 21, 2013

The Accounting Review, Forthcoming

Abstract:     
We investigate whether and when firms manage the tone of words in earnings press releases, and how investors react to tone management. We estimate abnormal positive tone, ABTONE, as a measure of tone management from residuals of a tone model that controls for firm quantitative fundamentals such as performance, risk, and complexity. We find that ABTONE predicts negative future earnings and cash flows, is positively associated with upward perception management events, such as, just meeting/beating thresholds, future earnings restatements, SEO and M&A, and is negatively associated with a downward perception management event, stock option grants. ABTONE has a positive stock return effect at the earnings announcement and a delayed negative reaction in the one and two quarters afterwards. Balance sheet constrained firms and older firms are more likely to employ tone management over accruals management. Overall, the evidence is consistent with managers using strategic tone management to mislead investors about firm fundamentals.

Keywords: Tone management, qualitative disclosure, earnings management, market efficiency, behavioral finance

JEL Classification: M41, G02

Accepted Paper Series





Not Available For Download

Date posted: November 17, 2011 ; Last revised: November 12, 2013

Suggested Citation

Huang, Xuan and Teoh, Siew Hong and Zhang, Yinglei, Tone Management (August 21, 2013). The Accounting Review, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1960376 or http://dx.doi.org/10.2139/ssrn.1960376

Contact Information

Xuan Huang
California State University, Long Beach ( email )
1250 Bellflower Blvd
Long Beach, CA 90064
United States
Siew Hong Teoh (Contact Author)
University of California - Paul Merage School of Business ( email )
Irvine, CA California 92697-3125
United States
Yinglei Zhang
The Chinese University of Hong Kong (CUHK) - School of Accountancy ( email )
Shatin, N.T.
Hong Kong
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