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Do changes in MD&A section tone predict investment behavior?

Author

Listed:
  • John Berns
  • Patty Bick
  • Ryan Flugum
  • Reza Houston

Abstract

We find that changes in managerial tone predict firm corporate investment activities. Tone changes within the Management Discussion and Analysis section of the 10‐K are positively related to subsequent capital investments and M&A activity. We find the predictive content of tone changes to be present at the firm and industry‐levels, and when accounting for alternative sources of incremental information associated with firm investment activities. Our findings broaden the scope of information encapsulated by changes in financial statement tone.

Suggested Citation

  • John Berns & Patty Bick & Ryan Flugum & Reza Houston, 2022. "Do changes in MD&A section tone predict investment behavior?," The Financial Review, Eastern Finance Association, vol. 57(1), pages 129-153, February.
    • Handle: RePEc:bla:finrev:v:57:y:2022:i:1:p:129-153
    DOI: 10.1111/fire.12280
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    3. Elshandidy, Tamer & Ahmed, Yousry, 2023. "Stock price informativeness of risk disclosure: Does time orientation matter?," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 149-162.

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