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Is Textual Tone Informative or Inflated for Firm’s Future Value? Evidence from Chinese Listed Firms

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  • Xiao Wu, Dong
  • Yao, Xiao
  • Luan Guo, Jian

Abstract

Using a sample of listed firms from 2012 to 2017 in the A-share markets of Shanghai Stock Exchange, we examine how textual tone influences a firm’s future value based on a total of 4694 annual reports. We find that the tone of the Management Discussion and Analysis (MD&A) sends a signal of managers’ expectations of the firm and generates a long-term effect on market responses. We show that firms with more optimistic MD&A tone tend to present higher firm value. We further discover that such impact is weakened for the firms with higher-paid executives and more independent directors. Our empirical results are robust to a battery of checks.

Suggested Citation

  • Xiao Wu, Dong & Yao, Xiao & Luan Guo, Jian, 2021. "Is Textual Tone Informative or Inflated for Firm’s Future Value? Evidence from Chinese Listed Firms," Economic Modelling, Elsevier, vol. 94(C), pages 513-525.
    • Handle: RePEc:eee:ecmode:v:94:y:2021:i:c:p:513-525
    DOI: 10.1016/j.econmod.2020.02.027
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    8. Sri Ningsih & Iman Harymawan & Nurul Fitriani & Brian Lam, 2021. "Pessimistic Tone in Earnings Announcement and CSR Disclosure: Exploring the Interacting Role of CEO Busyness," Sustainability, MDPI, vol. 13(24), pages 1-19, December.
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