The Real Effects of Disclosure Tone: Evidence from Restatements
55 Pages Posted: 31 Jul 2010 Last revised: 9 Mar 2012
Date Written: 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.
Keywords: language tone, restatements, investment
JEL Classification: M43, M41, M45
Suggested Citation: Suggested Citation