Do successive performance matter for tone management?: evidence from China

Sibei Yan; Iny Hwang; Hyung Rok Jung; Taejin Jung

Do successive performance matter for tone management?: evidence from China

Sibei Yan ^[1] ; Iny Hwang ^[2] ; Hyung-Rok Jung ^[3] ; Taejin Jung ^[4]
1. [1] Chengdu University
  
  Chengdu University
  
  China
2. [2] Seoul National University
  
  Seoul National University
  
  Corea del Sur
3. [3] Kyung Hee University
  
  Kyung Hee University
  
  Corea del Sur
4. [4] Universidad IE
  
  Universidad IE
  
  Segovia, España
Mostrar afiliaciones +
Localización: Revista española de financiación y contabilidad, ISSN 0210-2412, Vol. 53, Nº 4, 2024, págs. 506-536
Idioma: inglés
DOI: 10.1080/02102412.2024.2361999
Texto completo no disponible (Saber más ...)
Resumen
- This paper investigates whether managers deliberately adjust the tone of their non-financial disclosure depending on their firm performance over multiple periods. Using 13,995 firm-year MD&As (Management Discussion and Analysis) in annual reports of companies listed on the Shanghai and Shenzhen Stock Exchanges from 2009 to 2019, we first observe a bias towards good news disclosure by managers in their MD&A section. More importantly, we find that this asymmetric tone management is more pronounced when a firm’s performance declines consecutively. In cross-sectional tests, we provide evidence that the relationship between asymmetric tone management and successive performance is weaker for firms with state ownership and those with a high marketability index. We suggest that in non-U.S. markets, such as China, asymmetric tone management is more likely to reflect the opportunistic behaviour of managers. Overall, our study sheds new light on tone management in emerging markets and highlights the importance of a multi-period relation in understanding managers’ tone management behaviour.
Referencias bibliográficas
- Abou-El-Sood, H., & El-Sayed, D. (2022). Abnormal disclosure tone, earnings management and earnings quality. Journal of Applied Accounting...
- Allen, F., Qian, J., & Qian, M. (2005). Law, finance, and economic growth in China. Journal of Financial Economics, 77(1), 57–116. https://doi.org/10.1016/j.jfineco.2004.06.010
- Anderson, M. C., Banker, R. D., & Janakiraman, S. N. (2003). Are selling, general, and administrative costs “sticky”? Journal of Accounting...
- Ao, X. (2019). Research on the disclosure of listed companies and investors’ interpretation in text information based on crawler and text...
- Baginski, S. P., Campbell, J. L., Hinson, L. A., & Koo, D. S. (2018). Do career concerns affect the delay of bad news disclosure? The...
- Banker, R. D., Byzalov, D., Ciftci, M., & Mashruwala, R. (2014). The moderating effect of prior sales changes on asymmetric cost behavior....
- Barberis, N., Shleifer, A., & Vishny, R. (1998). A model of investor sentiment. Journal of Financial Economics, 49(3), 307–343. https://doi.org/10.1016/S0304-405X(98)00027-0
- Barron, O. E., Kile, C. O., & O’Keefe, T. B. (1999). MD&A quality as measured by the SEC and analysts’ earnings forecasts. Contemporary...
- Bian, S., Jia, D., Li, R., Sun, W., Yan, Z., & Zheng, Y. (2021). Can management tone predict IPO performance?–Evidence from mandatory...
- Bryan, S. H. (1997). Incremental information content of required disclosures contained in management discussion and analysis. The Accounting...
- Bu, D., Zhang, C., Lin, P. T., & Hu, F. (2020). Political uncertainty, institutions and accounting conservatism: Evidence from the provincial...
- Campbell, J. L., Lee, H. S. G., Lu, H. M., & Steele, L. B. (2020). Express yourself: Why managers’ disclosure tone varies across time...
- Chang, H., Hall, C. M., & Paz, M. T. (2021). Suppliers’ product market competition, customer concentration, and cost structure. Journal...
- Chen, C. X., Nasev, J., & Wu, S. Y. C. (2022). CFO overconfidence and cost behavior. Journal of Management Accounting Research, 34(2),...
- Chen, H., Liu, S., Liu, X., & Wang, J. (2022). Opportunistic timing of management earnings forecasts during the COVID‐19 crisis in China....
- Chen, W. R. (2008). Determinants of firms’ backward-and forward-looking R&D search behavior. Organization Science, 19(4), 609–622. https://doi.org/10.1287/orsc.1070.0320
- Cheng, C. A., Wang, J., & Wei, S. X. (2015). State ownership and earnings management around initial public offerings: Evidence from China....
- D’Augusta, C., & DeAngelis, M. D. (2020a). Does accounting conservatism discipline qualitative disclosure? Evidence from tone management...
- D’Augusta, C., & DeAngelis, M. D. (2020b). Tone concavity around expected earnings. The Accounting Review, 95(1), 133–164. https://doi.org/10.2308/accr-52448
- Daniel, K., Hirshleifer, D., & Subrahmanyam, A. (1998). Investor psychology and security market under‐and overreactions. The Journal of...
- Davis, A. K., Ge, W., Matsumoto, D., & Zhang, J. L. (2015). The effect of manager-specific optimism on the tone of earnings conference...
- Davis, A. K., Piger, J. M., & Sedor, L. M. (2012). Beyond the numbers: Measuring the information content of earnings press release language....
- Dichev, I. D., & Tang, V. W. (2009). Earnings volatility and earnings predictability. Journal of Accounting and Economics, 47(1–2), 160–181....
- Ding, M., He, Z., Jia, Y., & Shen, M. (2021). State ownership, implicit government guarantees, and crash risk: Evidence from China. Pacific-Basin...
- Feldman, R., Govindaraj, S., Livnat, J., & Segal, B. (2010). Management’s tone change, postearnings announcement drift and accruals. Review...
- Frankel, R., & Litov, L. (2009). Earnings persistence. Journal of Accounting and Economics, 47(1–2), 182–190. https://doi.org/10.1016/j.jacceco.2008.11.008
- Fu, X., Wu, X., & Zhang, Z. (2021). The information role of earnings conference call tone: Evidence from stock price crash risk. Journal...
- Hammond, S. A., & Slocum, J. W. (1996). The impact of prior firm financial performance on subsequent corporate reputation. Journal of...
- Huang, X., Teoh, S. H., & Zhang, Y. (2014). Tone management. The Accounting Review, 89(3), 1083–1113. https://doi.org/10.2308/accr-50684
- Hutton, A. P., Marcus, A. J., & Tehranian, H. (2009). Opaque financial reports, R2, and crash risk. Journal of Financial Economics, 94(1),...
- Hwang, I., Jung, T., Lee, W. J., & Yang, D. G. (2021). Asymmetric inventory management and the direction of sales changes. Contemporary...
- Jiang, F., & Kim, K. A. (2015). Corporate governance in China: A modern perspective. Journal of Corporate Finance, 32, 190–216. https://doi.org/10.1016/j.jcorpfin.2014.10.010
- Jones, J. J. (1991). Earnings management during import relief investigations. Journal of Accounting Research, 29(2), 193–228. https://doi.org/10.2307/2491047
- Kothari, S. P., Shu, S., & Wysocki, P. D. (2009). Do managers withhold bad news? Journal of Accounting Research, 47(1), 241–276. https://doi.org/10.1111/j.1475-679X.2008.00318.x
- Lee, J., & Park, J. (2019). The impact of audit committee financial expertise on management discussion and analysis (MD&A) tone. European...
- Lennox, C., & Wu, J. S. (2022). A review of China-related accounting research in the past 25 years. Journal of Accounting and Economics,...
- Li, F. (2008). Annual report readability, current earnings, and earnings persistence. Journal of Accounting and Economics, 5(2/3), 221–247....
- Li, F. (2010). The information content of forward‐looking statements in corporate filings-A nave Bayesian machine learning approach. Journal...
- Lin, K. J., Lu, X., Zhang, J., & Zheng, Y. (2020). State-owned enterprises in China: A review of 40 years of research and practice. China...
- Liu, C., Wang, F., & Xue, W. (2023). The annual report tone and return comovement—evidence from China’s stock market. International Review...
- Liu, P., & Nguyen, H. T. (2020). CEO characteristics and tone at the top inconsistency. Journal of Economics and Business, 108, 105887....
- Liu, X., Wang, L., & Dai, Y. (2023). Capital market liberalization and opportunistic insider sales: Evidence from China. Journal of International...
- Loughran, T., & McDonald, B. (2011). When is a liability not a liability? Textual analysis, dictionaries, and 10‐Ks. The Journal of Finance,...
- Lu, H., Shin, J. E., & Zhang, M. (2023). Financial reporting and disclosure practices in China. Journal of Accounting and Economics, 76(1),...
- Mayew, W. J., Sethuraman, M., & Venkatachalam, M. (2015). MD&A disclosure and the firm’s ability to continue as a going concern. The...
- Miller, B. P. (2010). The effects of reporting complexity on small and large investor trading. The Accounting Review, 85(6), 2107–2143. https://doi.org/10.2308/accr.00000001
- Muslu, V., Radhakrishnan, S., Subramanyam, K. R., & Lim, D. (2015). Forward-looking MD&A disclosures and the information environment....
- Naughton, B. (2017). Is China socialist? Journal of Economic Perspectives, 31(1), 3–24. https://doi.org/10.1257/jep.31.1.3
- Ohlson, J. A. (1980). Financial ratios and the probabilistic prediction of bankruptcy. Journal of Accounting Research, 18(1), 109–131. https://doi.org/10.2307/2490395
- Petersen, M. A. (2009). Estimating standard errors in finance panel data sets: Comparing approaches. The Review of Financial Studies, 22(1),...
- Pistor, K., & Xu, C. (2005). Governing stock markets in transition economies: Lessons from China. American Law and Economics Review, 7(1),...
- Roychowdhury, S. (2006). Earnings management through real activities manipulation. Journal of Accounting and Economics, 42(3), 335–370. https://doi.org/10.1016/j.jacceco.2006.01.002
- Schleicher, T., & Walker, M. (2010). Bias in the tone of forward‐looking narratives. Accounting and Business Research, 40(4), 371–390....
- Securities and Exchange Commission. (2003). Commission guidance regarding management’s discussion and analysis for financial condition and...
- Shan, Y. G. (2019). Do corporate governance and disclosure tone drive voluntary disclosure of related-party transactions in China? Journal...
- Soffer, L. C., Thiagarajan, S. R., & Walther, B. R. (2000). Earnings preannouncement strategies. Review of Accounting Studies, 5(1), 5–26....
- Tan, Y., Zhu, Z., Zeng, C., & Gao, M. (2014). Does external finance pressure affect corporate disclosure of Chinese non-state-owned enterprises?...
- Whittington, R., & Yakis-Douglas, B. (2012). Strategic disclosure: Strategy as a form of reputation management. The Oxford Handbook of...
- Wu, D. X., Yao, X., & Guo, J. L. (2021). Is textual tone informative or inflated for firm’s future value? Evidence from Chinese listed...
- Wu, S., Xu, N., & Yuan, Q. (2009). State control, legal investor protection, and ownership concentration: Evidence from China. Corporate...
- Xu, N., Li, X., Yuan, Q., & Chan, K. C. (2014). Excess perks and stock price crash risk: Evidence from China. Journal of Corporate Finance,...
- Yan, S., Choi, A., Jung, H. R., & Lee, J. (2024). Asymmetric tone in management discussion and analysis and its impact: Evidence from...
- Yoon, A. S. (2021). The role of private disclosures in markets with weak institutions: Evidence from market liberalization in China. The Accounting...