A Study Of The Impact Of Accounting Text Tone On The Economic Consequences Of Listed Companies

With the occurrence of fraud events such as Enron,it is particularly important to find the way to improve the quality of information disclosure,reduce the information asymmetry between companies and investors,and protect the interests of investors and the stability of the financial market.In the past,investors mainly used the financial statements and their notes to capture the information related to the company's value.However,to date,the off balance sheet contract is increasing,the traditional financial statements cannot fully disclose the relevant accounting information.Meanwhile,after Enron and other fraud events,stakeholders also put forward higher requirements for the relevance and forward-looking of information.Thus,the traditional financial statements and their notes are unable to meet the market demand.The text interpretation in the company's disclosure information may solve this problem,and bring rich value that the structured data is difficult to embody for the information usersAccording to the early accounting view,there is no information value contained in the accounting texts.The disclosure of accounting texts is based on the general template,including template text,disclaimer statements,standardized statements and other unimportant details only However,recently,the research has proved that,in addition to procedural statements,accounting texts also contain emotional expressions with rich language color:the management would show a dynamic corporate image with flesh and blood through emotional text narration in the accounting texts,making it easier for investors to understand the operation of the company and make corresponding investment decisionsA large number of existing research results abroad have proved that the accounting textual tone has rich information value,and managers would indicate the future performance of the company to investors through optimistic or pessimistic language.And the market can correctly interpret the basic information hidden in the text intonation,so as to make a response to the textual information consistent with its emotional direction.However,research on the dislocsure tone mainly focuses on the U.S.market.The culture of the United States and other countries originated from Western Europe,which is generally considered to be a low context society based on direct communication.However,Asian languages such as Chinese belong to high context culture and often rely on obscure communication.Additionally,compared with developed markets,managers in the Chinese market face relatively weak external regulatory constraints.Therefore,the conclusion of foreign research on disclosure tone may not be applicable to China.Thus,this paper selects the audited and detailed annual report as the data source,and extracts the emotional tendency presented by 'Management Discussion and Analysis' as the proxy of management tone.Based on the corresponding theories of information economics and behavioral finance,we analysis a series of impacts of management tone in the annual report on listed companies.The main purpose of this paper is to explore:(1)Will executives of the listed firms in China transmit incremental information about the company's future performance through the disclosure tone?(2)Will Chinese investors respond significantly to the tone of management?(3)Is the disclosure tone related to the crash risk in the future?In view of the above three problems,the main conclusions of this paper are as follows:Firstly,we find that there is a significant positive correlation between the tone of management and the future performance of the company.The more positive the management tone is,the higher the firm performance in the future.This result shows that the management tone includes the prediction of the company's future development trend and the incremental information of the company's future performance level.Besides,we discover that the positive correlation between the management tone and the future performance of firm is weakened for firms with low monetary compensation,high pressure of equity exercise or resignation to executives.This reveals that when executives face conflict of interest,there is a "bubble"phenomenon in management tone,the management tone cannot be achieved at the firm performance in the future.In the robustness test,we change the measurement variables of the company's performance,and extracted the tone of the 'forward looking and statement' in the Management Discussion and Analysis as a new independent variable,the results in the above still hold.In the additional analysis,we also find that companies with high ownership concentration and high separation of rights present less information content of disclosure tone.Executives with larger rights pay more attention to the long-term development of the company and tend to disclose the incremental information of the company.Secondly,we address that the more positive the management tone reveals,the higher stock cumulative abnormal return performs.But this phenomenon will gradually weaken and even disappear with timing.In other words,only in the short time after the annual report is released,the investors' decision-making is significantly affected by the MD&A tone.In addition,to the perspective of mass media information supply,we exploit the impact of media attention on the tone of annual report and abnormal yield.We confirm that the repeated and high-frequency reports of Internet media will stimulate more market attention and more significant market response.All these conclusions are verified in the robustness tests.After distinguishing the information environment and economic environment,we note that investors'value judgment and investment decision-making are more easily affected by the tone of management,when the firms are under poor information environment,high analysts' attention,and good macroeconomic environmentMoreover,this paper also find evidence that executives may hide 'bad news' through tone disclosure,which increases the stock price crash risk.The crash risk of future stock price is high for firms with positive MD&A abnormal tone.To observe whether the bad information hidden in the tone of management will appear earlier,we shorten the estimated range of the risk of stock price crash to 39 weeks and 28 weeks.And find that with the shortened window period,the MD&A tone has no significant effect on the stock price crash risk.All these results show that the management does have tone manipulation behavior in annual report disclosure,but the bad news hidden in it will suddenly enter the market and cause the stock price crash only for the accumulation period.We also compare the effect of text readability and management tone on the risk of stock price crash,and find that the company executives prefer the disclosure tone to the readability for opportunistic behavior.Finally,this paper addresses that the positive audit report tone could significantly reduce the stock price crash risk,and the more positive tone of audit report is,the weaker the positive correlation between managerial abnormal tone and risk of stock price crash shows.We also discover that compared with the 'standard' or 'non-standard' way of marking audit opinion disclosure,the audit report tone is more suitable and meaningful to show the attitude of auditors in the audit report.All these conclusions represent that,firstly,audit report tone has information content.The positive or negative degree expressed in each audit report can accurately express the auditor's opinion on the company's financial disclosure and the prediction of the company's risk.Secondly,the audit report,as an external corporate governance mechanism,can indirectly supervise and improve the textual information disclosure environment of the company,reduce the space for tone manipulation of the management,and improve the cost of opportunistic behavior of the management by giving opinions on the financial information of the company After changing the risk estimation range of stock price crash risk and analysis sample,and extracting abnormal tone of management,the above conclusions are still stable.In the additional analysis,we find that the incentive of managers to manipulation textual tone in MD&A is weakened for firm with overconfidence managers and stated-owned.Furthermore,the limitation of audit report tone plays on the relationship between MD&Atone and stock price crash risk is also high when the audit firm is high paidThe academic contributions of this paper are as follows:(1)the existing researches on the disclosure tone of Chinese accounting texts are all based the method of translating L&M emotion dictionary.Besides translation of L&M dictionary,this paper constructs an emotional corpus and uses bootstrapping to find similar words to obtain a more comprehensive and suitable dictionary for Chinese financial accounting textual analysis.By considering the situation of part of speech reversal(didn't/increase)and degree expression(significantly/increase)in the quantitative model of tone,the existing method of text intonation calculation is improved,and the emotion of text presentation is more accurately captured.(2)The existing articles about the management tone and the future performance of the company all assume that the tone information is unbiased.This paper finds that when the management faces strong conflict of interest,the management tone can no longer represent the future performance of the company.This conclusion enriches the theoretical framework between the disclosure tone and corporate performance.(3)This paper finds that there are two conditions for the influence of management tone on abnormal returns of stocks:first,with the extension of time,the effect will gradually weaken until it disappears;second,the media's high-frequency and repetitive reports on enterprises will stimulate the market to have a stronger response to management tone The above conclusions enrich the research framework of the existing stock market on the response of disclosure tone.(4)Investigating the relationship between the tone of management and the stock price crash risk,this paper directly confirms the tone manipulation of Chinese listed companies.It enriches the existing literature on tone manipulation and influence factors of stock price crash risk.(5)To date,there is no discussion about the influence of audit report tone on stock market response.This paper quantifies the emotional expression by stripping the procedural statements in audit report.We discover that the more positive the tone of audit report reveals,the lower stock price crash risk in the future,and the weaker the positive relationship between the tone of management and the stock price crash risk.The above conclusions expand the influence of stock price crash risk and accounting textual researchThe results of this paper also have the following practical contributions.To date,the disclosure of financial reports,earnings announcements,conference calls,roadshows and other information in the network platform makes the accounting field in a new era of information explosion.To this massive information,in addition to the institutional financial data information that has been fully valued,the content of accounting textual information is more and more valued by the regulatory and market.The conclusion of this paper provides a reference for investors to discover and use accounting textual information,a guidance scheme for improving information disclosure and management efficiency of listed companies,and a feasible clue for relevant government departments to further improve the relevant laws and regulations of accounting text information disclosure.