Determinants And Economic Consequences Of The Tone Of Annual Report

A complete annual report of listed company contains two parts of information.One part is quantitative information,including the quantified financial statement information in the annual report and the corresponding notes.The other part is qualitative information,including all the words description in the annual report,such as risk tips,future development prospects,etc.“Management Discussion and Analysis”(MD&A)is a channel for the company’s management to communicate with investors on the current operating conditions and future development plans.It has attracted the attention of investors and analysts.Foreign scholars’ research on "MD&A" has been basically mature,while domestic related research is still in its infancy.To develop further study of "MD&A",firstly,I quantify the textual tone of the future development prospects in “MD&A” by means of word frequency measurement.Then I analyze the various determining factors of the future development prospects tone.Finally,I analyze the relationship between the tone of future development prospects and future performance,as well as its impact on stock return.Through normative research and rigorous empirical model regression analysis,it is proved that:(1)The company’s current performance growth rate and current accruals will significantly positively affect the tone of future development outlook in “MD&A”.(2)The future development outlook tone has a significant positive correlation with next year’s performance(ROE)and performance changes(ROE changes),while the correlation with the second year after the disclosure of the annual report is weaker.(3)The tone change of the future development outlook is significantly positively correlated with the longterm cumulative abnormal return(LCAR)of the stock in the current year,but will not affect the future long-term cumulative abnormal return.