Textual Tone And Corporate Market Reaction

Based on theoretical analysis and empirical methods,the study explores the relationship between textual tone information presented by management,media,and online forums and market reaction of companies.Textual tone information from various sources has different effects on different stages of listed companies.This study constructs a theoretical analysis model to analyze the influence of ownership nature,government subsidies and managerial disclosure incentives on the effect of textual tone,which is tested in the empirical analyses.Based on the information asymmetry and the behavioral theories,the study focuses on the IPO first-day returns,long-run abnormal returns,and stock price crash risk during firm’s operating process.The study explores the effect of IPO prospectus,management discussion and analysis,media coverage,and online forum textual tone on the market reaction of listed companies.The empirical analysis of listed companies at IPO stage shows a significant effect of IPO prospectus,media coverage,and online forums textual tone on IPO first-day returns,IPO underpricing and overpricing.Moreover,the impact of textual tone is different before and after the implementation of the IPO quiet period regulation.Specifically,positive tone of the prospectus has a significant negative relationship with first-day returns,which exists both before and after the quiet period regulation is implemented.Before the implementation of quiet period regulation,there is a significant positive relationship between the net positive tone of media and initial returns.After the implementation of quiet period regulation,there is a significant negative relationship between the net positive tone of media and initial returns.The net positive tone of online forums has a significant positive relationship with first-day returns,which is more significant before the quiet period regulation is implemented.The effect of quiet period regulation implies that tone of media and online forums tends to create noise and irrational emotion before the implementation of the regulation,increasing first-day returns.After the implementation of the regulation,media coverage and online forum discussion are less noisy or irrational due to the improved information environment.In addition,the noise and emotion generated by the tone of the media and online forums tend to boost first-day returns when the business is less complex or riskier.Tone of prospectus moderates the relationship between media tone and IPO first-day returns,while the accuracy and optimism of analysts’ forecasts mediate the relationship.In general,textual tone of prospectus tends to reduce information asymmetry,while textual tone of media coverage and online forum creates noise and irrationality before the implementation of quiet period regulation.The study examines the relationship between different types of textual tone and long-term investment value of public firms.MD&A,media coverage,and online forum tones have different effects on the long-term investment value of listed firms.There is a significant positive relationship between managerial net positive tone and long-term excess returns of listed companies,and the impact of management negative tone is greater than its positive tone.Net positive tone of media is significantly and positively correlated with long-term excess returns of listed companies.Both positive tone and negative tone of media significantly affect longterm excess returns.There is a significant positive relationship between net positive tone of online forums and long-term excess returns of listed companies.Both positive and negative tone of online forums significantly affect long-term excess returns.Heterogeneity analysis shows that non-state-owned listed companies,listed companies with low government subsidies,and listed companies without management divestment have a more managerial significant positive tone impact on their long-term excess returns.The mechanism test shows that the relationship between text tone and long-term excess returns of listed companies is moderated by managerial divestments,while the future cash flow of operating activities,future returns,analyst tracking,corporate transparency,institutional investor ownership and fund ownership play a mediating role.Generally,management disclosure occurs after the end of the financial year,and managerial net positive tone is positively correlated with long-term excess return of the following period.Media coverage and online forum discussion occur in the current period,which tend to cause market reaction in the same period.Furthermore,the study explores the relationship between different types of textual tone and stock price crash risk,examining the impact of textual tone on market reaction while considering the effect of firm ownership structure.MD&A,media,and online forum tones have different effects on stock price crash risk.It is found that the more positive the tone of management discussion and analysis is,the lower the risk of stock price crash is,and the higher the risk of stock price crash is in the later period.The effect of management’s negative tone is greater than its positive tone.The more positive the tone of the media,the lower the risk of stock price crash of listed companies,and the higher the risk of stock price crash of the later period.Both positive and negative tone of media significantly affect the risk of stock price crash.The more positive the tone of online forum,the lower the risk of stock price crash of listed companies,and the higher the risk of stock price crash of the later period.Both positive and negative tones of online forums significantly affect the risk of stock price crash.Further research shows that non-state-owned listed companies,listed companies with low demand for external resources acquisition,and listed companies with high information transparency have a more managerial significant negative impact on the risk of stock price crash.The mechanism test shows that the managerial motivation moderates the relationship between textual tone and the risk of stock price crash,while institutional investors and funds play a mediating role.Textual tone information causes overreaction in the market in that positive tone reduces the risk of near-term stock price crash risk but triggers a later correction in value.The relationship between textual tone and market reaction of listed firms depends on disclosing subject,disclosing incentives,policies and regulations,and the rationality of investors.The truthfulness of information released by the disclosing subject and the rationality of investors affect the degree of information asymmetry in the market.The rationality of investors also determines the degree of market reaction to textual tone disclosure,while the policies and regulations play a certain role in restricting the incentives and behavior of disclosing subject.The above factors jointly determine the impact of textual tone on the market.