Management discussion and analysis: a tone analysis on US financial listed companies

Caserio, Carlo; Panaro, Delio; Trucco, Sara

doi:10.1108/md-10-2018-1155

Cited by 32 publications

(33 citation statements)

References 52 publications

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“…Abnormal disclosure tone This is consistent with the group of prior studies adopting the opportunistic perspective to show that managers can strategically use narrative disclosure tone to disinform investors (e.g. Caserio et al, 2019;Davis and Tama-Sweet, 2012;Schleicher and Walker, 2010;Huang et al, 2014). Additionally, this result is consistent with prior studies that use impression management strategies or linguistic features and its manipulation to detect earnings management practices and fraud (e.g.…”

Section: Abnormal Disclosure Tone and Earnings Managementsupporting

confidence: 88%

“…Disclosure tone in corporate narratives is mainly provided for informative purposes; to convey management's view about the companies' current and future performance to users (El-Rod, 2009). However, management may use disclosure tone opportunistically to strategically mask firms' poor performance and mislead users (Arslan-Ayaydin et al, 2016;Caserio et al, 2019;Davis and Tama-Sweet, 2012;Huang et al, 2014;Schleicher and Walker, 2010).…”

Section: Introductionmentioning

confidence: 99%

“…An alternative competing perspective related to management's use of abnormal disclosure tone, is the "Opportunistic or Impression Management Perspective". Ample studies demonstrate that management uses disclosure tone intentionally for self-serving interests (Arslan-Ayaydin et al, 2016;Caserio et al, 2019;Davis and Tama-Sweet, 2012;Huang et al, 2014;Schleicher and Walker, 2010). Agency theory (Jensen and Meckling, 1976) portrays this self-serving behavior of management.…”

Section: Introductionmentioning

confidence: 99%

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Abnormal disclosure tone, earnings management and earnings quality

Abou-El-Sood

El-Sayed

2022

JAAR

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PurposeThe authors investigate whether abnormal tone in corporate narrative disclosures is associated with earnings management and earnings quality, in an emerging market context. Based on agency theory and opportunistic/impression management perspective, this study examines whether executives manage disclosure tone to support their opportunistic behavior, when using earnings management.Design/methodology/approachThis study uses a sample of earnings press releases of publicly traded firms in the MENA region during 2014–2019. It employs textual analysis to measure disclosure tone. The authors estimate abnormal disclosure tone after controlling for firm characteristics. Discretionary accruals proxy for earnings management and are estimated using Modified Jones model. Earnings quality is measured using accounting-based and market-based proxies: earnings smoothness, persistence, predictability and value relevance/informativeness.FindingsResults show a positive association between abnormal disclosure tone and earnings management. Additionally, results show that earnings persistence is higher for firms with lower levels of abnormal disclosure tone. Results are sustained for earnings smoothness, but not for predictability and value relevance/informativeness.Research limitations/implicationsResults provide initial evidence of management's use of tone management jointly with earnings management. This adds to prior studies adopting the opportunistic perspective of disclosure tone, through showing that discretionary tone in narrative disclosures can be strategically used by management to influence investors' perceptions.Practical implicationsThe results provide valuable insight to board of directors, auditors and market participants on the possible biases emerging from tone of narrative disclosures in corporate reports. For regulators and standard-setters, results shed light on the need for regulations and rules beyond financial statements, to guide disclosure of narrative information in different corporate reports.Originality/valueThis study contributes to the rare evidence that investigates textual disclosure characteristics to uncover management's opportunistic practices and assess earnings quality. Where majority of studies concentrate on developed markets, this study provides novel evidence of emerging markets by examining the association between abnormal disclosure tone and earnings management/earnings quality. Also, it validates the tone management model proposed by Huang et al. (2014) for capturing tone manipulation.

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Section: Abnormal Disclosure Tone and Earnings Managementsupporting

confidence: 88%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Abnormal disclosure tone, earnings management and earnings quality

Abou-El-Sood

El-Sayed

2022

JAAR

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“…The current study is using the tone of MD&A to explore the reactions from the managements towards COVID-19 outbreak. Many previous studies such as Clarkson et al (1999) conducted research on the text analysis of MD&A, Lee and Park (2009) whom investigate the factors that may affect the tone variation, Feldman et al (2010) conducted study on the incremental information provided by the 'tone change' and recent study form US, Caserio et al (2019) have researched on whether financial companies of the USA are inclined to manipulate the MD&A tone. Ideally, the tone of MD&A has become a tool of disclosure in which can reduce the information asymmetry between the management and stakeholders.…”

Section: Literature Reviewmentioning

confidence: 99%

The Impacts of Covid-19 on Management and Discussion Analysis (MD & A) Disclosures: Evidence in Malaysia

Jamil¹,

Hashim²

2021

IJARAFMS

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As the Coronavirus (COVID-19) pandemic is predicted to plunge the global economy, the disclosure on the trends or uncertainties impacting the business operation and financial condition is deemed essential. One of the disclosure areas affected by COVID-19 is management discussion and analysis (MD&A) which is urged to report current and potential future impact of the global pandemic to operations and financial conditions. In this paper, the study is to analyse the information of MD&A disclosure whether the management stating their reaction in relation to COVID-19 implications. The quantitative methodology using secondary data has been utilized to conduct the study. Using a sample of 76 Malaysian public listed companies that made early disclosure on COVID-19 statement, the study employed sentiment analysis to code for the overall tone or sentiment statement made by the chairman/CEO in MD&A. The finding shows that 40.8% (n = 31 firms) of the top management signals pessimistic reaction (P), 21.1% (n =16 firms) shows optimistic reaction (O), 17% (n = 13 firms) shows realism reaction (R) and 21.1% (n = 16 firms) provides no statement on COVID-19 in their MD&A. The top management's reaction could serve as one of the communication mediums to signal positive, neutral or negative financial and economic anticipation. We believe the study is timely to provide such evidence as capital market regulators worldwide recently has called for the stock exchange operator to issue additional guidance for companies going forward to inform their shareholders and the investing public about the impacts of the COVID-19 pandemic. Further researches can be conducted to analyse any action taken by companies to modify their MD&A disclosures to adequately capture all the elements of this developing situation and provide more information to users.

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“…Motived by the scarcity of research that examines TDs in the banking sector, we choose this specific sector as a context to our study. Prior research in banks examines either tone (Caserio et al. , 2020; Del Gaudio et al.…”

Section: Introductionmentioning

confidence: 99%

Tone, readability and financial risk: the case of GCC banks

Hassan

Abu-Abbas

Kamel

2021

JAEE

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PurposeThe authors investigate the impact of disclosure tones and financial risk on the readability of annual reports in the banking sector. The authors also examine the moderating effect of banks' financial risk on the tone–readability relationship.Design/methodology/approachThis study relies on the agency theory and the social psychology theory to formulate its testable hypotheses and explain the empirical findings. It uses a sample of 390 bank-year observations from banks listed in the Gulf Cooperation Council (GCC) Stock Exchanges during the period 2014–2019. It also employs random effect regressions to analyze the data and to examine the reverse causality/endogeneity in order to obtain robust findings.FindingsThis study’s results demonstrate that easy (difficult) to read annual reports is significantly associated with positive (negative) tone. Bank managers characterized as “too positive/optimistic” and banks with higher financial risks publish less readable annual reports. The results also show that the interaction between negative tone and a bank's financial risk is inversely associated with reading difficulty, indicating that managers prepare easy text to clarify causes of their banks’ high risks, yet they communicate this easy text with a negative tone that reflects their feelings/emotions towards the financial risks of their banks.Practical implicationsThis study’s findings call for the use of a plain English text that bears a neutral tone and urge financial analysts to go beyond the financial aspects of annual reports. They also stimulate policymakers to draft policies, which ensure the presence of audit committee members who possess a broad expertise to uncover the linguistic issues embedded in the annual reports.Originality/valueTo the best of the authors' knowledge, this is the first study dedicated to exploring the tone–readability association in the GCC's banking sector.

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Management discussion and analysis: a tone analysis on US financial listed companies

Cited by 32 publications

References 52 publications

Abnormal disclosure tone, earnings management and earnings quality

Abnormal disclosure tone, earnings management and earnings quality

The Impacts of Covid-19 on Management and Discussion Analysis (MD & A) Disclosures: Evidence in Malaysia

Tone, readability and financial risk: the case of GCC banks

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