| Annual financial report presents managers' review of their companies' business conditions in the current accounting period and their visions for future development prospects.To maximize the value of a company in a perfect market,managers are motivated to enhance their investors' confidence by opportunistic information disclosure,in order to make their company's stock prices as high as possible.In prior literature,information on annual financial reports has been mostly studied from the perspective of digital information.It has been consistently discovered that managers regulate corporate profits by choosing accounting policies,manipulating accrual accounts and changing real business activities.As a consequence,accounting information is distorted,while information asymmetry between companies and capital markets become more asymmetric.Under this circumstance,investors make wrong investment decisions,which thereby undermine their lawful rights and interests.As the China Securities Regulatory Commission formulates increasingly more elaborate regulatory rules,audit procedures become more rigorous,and small and medium-sized investors are more aware of self-protection,the space for managers to manipulate digital information is being narrowed.Over the past years,quality of accounting information has been significantly improved.However,this doesn't mean managers have given up information manipulation.In this study,the author considers that at present,managers' attention on information manipulation is shifting from digital information to text information.Text information mainly plays roles in further explaining and interpreting digital information in annual financial reports.Diversified words and expressions not only clearly convey semantic meanings,but also enable readers and information publishers to emotionally resonate with each other.It is just because of these features that text information perfectly remedies defects of digital information,so that recipients of information may fully understand real situation of companies.Nevertheless,text information also has its insurmountable shortcomings.First of all,it is not restricted by Accounting Standards for Enterprises established by the Ministry of Finance or Formats and Rules for Information Disclosure specified by the China Securities Regulatory Commission.Secondly,prevalent AuditLaw of the People's Republic of China stipulates that text information on annual financial reports of listed companies is not within the audit scope of audit departments,so it is impossible for auditors to judge audited companies to have not met standards owing to problems with quality of the text information.Due to these deficiencies,text information is significantly less reliable than digital information which is rigorously regulated and audited.Nevertheless,these deficiencies don't hinder text information from being used as important bases for investors to make decisions for several reasons as follows: Firstly,text information is easier to understand than digital information.As businesses became more and more complicated,while small and medium-sized investors generally lack professional skills for financial analysis,test information has turned into a critical aid for investors to understand digital information.Secondly,text information is more comparable.As capital markets got opener in China,differences have been expanded as well among listed companies,particularly after a range of interconnection strategies such as “Shanghai-Hong Kong Stock Connect”,“Shanghai-London Stock Connect” and“Shanghai-Germany Stock Connect” were implemented.According to diversified investment strategies,investors are supposed to have strong capacity for making investments.Hence,investors have to overcome industry differences among companies and differences among countries in making securities investments.Under this circumstance,text information plays important roles.Thirdly,text information contains more information.Evaluated by more and more diverse evaluation systems,value of modern companies is not only reflected from their business performances,but also manifested from other aspects such as corporate strategies,safety production,performance of social responsibilities and relationships with stakeholders and so on.Such content may not be conveyed by digitalized accounting information.However,it may be clearly obtained by investors from text information of annual financial reports.Whereas the text information plays crucial roles in investors' decision-making,it is helpful for investors to correctly understand the information and thus make the best investment decisions by studying factors impacting the information and economic consequences in depth,which might be also favorable for regulatory departments to formulate rules regarding pertinent information disclosure,so as to assist the companies in improving their text information.After literature review and theoretical analysis,this paper examines factors affecting Chinese listed non-financial companies and corresponding economic consequences from 2010 to2017.Three major conclusions are reached as follows:(1)After investigating correlations between text information and digital information,this paper discovers that earnings management for digital information is somewhat correlated to manipulation of text information.In addition,listed companies' managers who possess information advantages mislead investors by manipulation of digital information and text information,which are coordinated.This reflects that following earnings management,language management for text information has become the leading cause of conflicts between principals and agents.If not improved,it will heavily impair legitimate interests of small and medium-sized investors,which will be unfavorable for improving Chinese capital markets.(2)After studying correlations between management decisions and text information,this paper further notices the correlations between investment activities and text information in addition to the correlations between business/financial activities of listed companies and text information which have been discovered in existing studies.This reflects that in listed companies,the text information disclosed by senior managers is generally consistent with accounting information.Furthermore,it has been found that the greater the research and investment intensity,the more conservative the text information of annual financial reports is.To be specific,research and development are inversely proportional to managers' tones.These conclusions suggest that managers' investment decisions have significant impacts upon content and tone of text information in annual financial reports.To facilitate decision-making,the text information of annual financial reports is strategically manipulated.This is unfavorable for ordinary investors who don't master professional skills for financial analysis but rely on text information to understand companies.Under the circumstance of managers' strategic disclosure,the information asymmetry between companies and investors is not reduced,but expanded.(3)As to economic consequences of text information,although existing studies have suggested that text information is correlated to investors' reactions and managers' tones have positive correlations with stock price fluctuations,the consistency between managers' tones and figures of earnings has moderating effects.In case of any discrepancy between these two kinds of information,investors will judge that managers haven't disclosed their companies' information in good faith and thus underestimate stock prices.Furthermore,this paper suggests that audit fees are impacted by description of changes to business conditions in the textinformation and visions for future prospects.This indicates that auditors will still judge risks in accordance with text information and adjust their audit fees accordingly,even though their audit opinions are not affected by the information.Apart from auditors',analysts' behaviors are also impacted by text information.Specifically,analysts pay attention to text information of annual financial reports and respond to effective content of the reports.Nevertheless,analysts will pay less attention to the information and underestimate future corporate earnings if the inconsistencies between text information of annual financial reports and actual situation are fairly opportunistic.This paper mainly makes three theoretical contributions as follows: Firstly,it provides new ideas and methods for quantifying text information from the perspective of measurements under Chinese linguistic backgrounds.Domestic literature on text information has mostly adopted foreign tone quantification method,but this method has a natural defect: the combination of opportunistic vocabularies and particular account titles leads to opposite semantic meanings.In existing quantification methods,opportunistic vocabularies are considered opportunistic in a broad sense.The method for extracting sentence structures adopted in this paper is effective for overcoming this defect by analyzing structures of simple sentences.Secondly,this paper expands and deepens studies with respect to impacts of managers' decision-making upon information disclosure.Current studies regarding managers' decision-making and text information mostly focus on corporate business activities and financing,but rarely involve investments.However,this paper examines investments and thus fills the research gap.Thirdly,this paper enriches and expands studies concerning economic consequences of text information.Present studies about this field such as Li(2010),Loughran and McDonald(2011),Lin and Xie(2016),and Zeng(2017)mostly focus on effects of text information on stock prices.Nonetheless,this paper investigates effects of text information upon other capital market participants from more microscopic perspectives such as auditors' and analysts' behaviors,which is helpful for understanding economic consequences of text information more comprehensively. |
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