Abstract
The tone of a firm's financial disclosure is increasingly used as a variable in panel data regressions to predict future performance and explain investors’ reaction at earnings announcement. We investigate when tone is informative, and argue that the informativeness of tone increases with the information asymmetry between firms and investors. Using a sample of over 50,000 earnings press releases of about 1800 U.S. public firms between 2004 and 2015, we find that firm growth, size, age, complexity and forecast inaccuracy are key drivers of tone informativeness. The effect is economically significant, since, compared to the reference case of a transparent firm, we find that the slope coefficient of tone doubles or even quadruples in panel data regressions when the firm operates in an environment with high information asymmetry.
| Original language | English |
|---|---|
| Pages (from-to) | 231-245 |
| Number of pages | 15 |
| Journal | International Review of Financial Analysis |
| Volume | 57 |
| Early online date | 10 Feb 2018 |
| DOIs | |
| Publication status | Published - May 2018 |
Funding
This research was carried out thanks to financial support of the ICM-FWO - Intercollegiate Center for Management Science (Grant No. 11C8918N), and the Hercules Foundation (Project No. AKUL/11/02). We are very grateful to Naciye Sekerci for valuable comments and suggestions, as well as attendants at the 2016 Corporate Finance Day, 2017 Accounting Day, 2017 conference on Discourse approaches to financial communication (DAFC), and 2018 Annual Conference of the Midwest Finance Association (MFA).
| Funders | Funder number |
|---|---|
| Hercules Foundation | AKUL/11/02 |
Keywords
- Firm performance
- Information asymmetry
- Investor reaction
- Textual sentiment
- Tone informativeness
