Linguistic Tone of Municipal Management Discussion and Analysis Disclosures and Future Internal Control Quality

Journal of Governmental and Nonprofit Accounting, Forthcoming

43 Pages Posted: 9 Jun 2017 Last revised: 22 Nov 2018

See all articles by Kevin T. Rich

Kevin T. Rich

Marquette University - Department of Accounting

Brent Roberts

Virginia Commonwealth University (VCU), School of Business, Department of Accounting

Jean X. Zhang

Virginia Commonwealth University (VCU)

Date Written: November 1, 2018

Abstract

We investigate relations between the textual content of municipal disclosures and future internal control quality. Specifically, we examine whether the linguistic tone of municipal management discussion and analysis (MD&A) disclosures is associated with the likelihood of future internal control weaknesses. Using a sample of 362 municipal MD&A disclosures in fiscal year-end 2011, our empirical analysis suggests that positive (negative) tone in municipal MD&A disclosures is associated with fewer (more) subsequent year internal control weaknesses after controlling for other governance, demographic, and performance factors. Overall, our findings suggest that language in municipal MD&A disclosures plays an important role in signaling confidence in financial reporting systems, indicating that MD&A content contains important information in predicting the quality of future municipal financial reporting.

Keywords: linguistic tone, internal control quality, municipal MD&A

JEL Classification: H83

Suggested Citation

Rich, Kevin T. and Roberts, Brent and Zhang, Jean X., Linguistic Tone of Municipal Management Discussion and Analysis Disclosures and Future Internal Control Quality (November 1, 2018). Journal of Governmental and Nonprofit Accounting, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2975852 or http://dx.doi.org/10.2139/ssrn.2975852

Kevin T. Rich (Contact Author)

Marquette University - Department of Accounting ( email )

College of Business Administration
PO Box 1881
Milwaukee, WI 53092
United States

Brent Roberts

Virginia Commonwealth University (VCU), School of Business, Department of Accounting ( email )

Richmond, VA
United States

Jean X. Zhang

Virginia Commonwealth University (VCU) ( email )

301 West Main Street
P.O. Box 844000
Richmond, VA 23284
United States

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