Tone Management

The Accounting Review, Forthcoming

Posted: 17 Nov 2011 Last revised: 12 Nov 2013

See all articles by Xuan Huang

Xuan Huang

California State University, Long Beach

Siew Hong Teoh

UCLA Anderson School of Management

Yinglei Zhang

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

Date Written: August 21, 2013


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

Suggested Citation

Huang, Xuan and Teoh, Siew Hong and Zhang, Yinglei, Tone Management (August 21, 2013). The Accounting Review, Forthcoming, Available at SSRN: or

Xuan Huang

California State University, Long Beach ( email )

1250 Bellflower Blvd
Long Beach, CA 90064
United States

Siew Hong Teoh (Contact Author)

UCLA Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States


Yinglei Zhang

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

Shatin, N.T.
Hong Kong

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