Beyond Cheap Talk: Management's Informative Tone in Corporate Disclosures

55 Pages Posted: 19 Mar 2020

See all articles by Maoliang Li

Maoliang Li

Xiamen University - Institute for Financial and Accounting Studies

Huiying Wu

Western Sydney University

Min Xiao

Xiamen University - Department of Finance

Jiaxing You

Xiamen University

Date Written: December 2019

Abstract

This study investigates the information content of Management Discussion and Analysis (MD&A) reports of listed Chinese companies. We develop a Chinese word dictionary and measure the tones of MD&As. Our results indicate that tone is positively associated with future earnings and is particularly useful when a firm's future prospect is uncertain, accounting information is difficult to understand, or board monitoring is strong. Further analyses show that tone also predicts future cash flow, future sales growth, market reactions, analysts’ revisions, and institutional investors’ shareholdings. Together, we provide robust evidence that in emerging markets such as China, management tone conveys valuable information beyond cheap talk.

Keywords: Qualitative disclosure, Linguistic tone, Management discussion and analysis, Incremental information

Suggested Citation

Li, Maoliang and Wu, Huiying and Xiao, Min and You, Jiaxing, Beyond Cheap Talk: Management's Informative Tone in Corporate Disclosures (December 2019). Accounting & Finance, Vol. 59, Issue 5, pp. 2905-2959, 2019, Available at SSRN: https://ssrn.com/abstract=3556748 or http://dx.doi.org/10.1111/acfi.12554

Maoliang Li (Contact Author)

Xiamen University - Institute for Financial and Accounting Studies ( email )

422 Siming South Road
Xiamen, Fujian 361005
China
0592-2182768 (Phone)
0592-2181787 (Fax)

HOME PAGE: http://ifas.xmu.edu.cn/info/1023/1908.htm

Huiying Wu

Western Sydney University

PO Box 10
Kingswood, 2747
Australia

Min Xiao

Xiamen University - Department of Finance ( email )

Xiamen, Fujian 361005
China

Jiaxing You

Xiamen University ( email )

Xiamen, Fujian 361005
China

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