The Disclosure Tone, Earnings Management, Earnings Quality: Evidence Found in Indonesia Listed Manufacturing Industry

Abstract

This study examined the influence of earnings management (EM) and earnings quality (EQ) on the disclosure tone of an annual report. NVIVO’s coding AI measures the DT (Disclosure Tone) through automated text analysis. The sample used was 61 of Indonesia’s listed manufacturing companies from 2017 to 2021. The balanced panel data was used and executed by a weighted panel least square. The results prove that EM is essential for DT, while EQ is insignificant for DT. The higher EQ indicates the high asymmetric information from management to the stakeholders, which leads the company to disclose a more positive tone. However, the negative tone is also improving with a higher EQ. These results imply that when the company has higher EM, it tries to balance the tone of its annual report in order to gain the trust of stakeholders, this is beneficial for analysts, investors, and regulators when collecting information from annual reports. Future studies can extend this framework to other types of industries since each industry has specific characteristics in giving the tone in their reports. Besides, future studies can also focus on the tone of the sustainability report or integrated report in other countries.
 Keywords: earnings management, earnings quality, disclosure tone, manufacturing industry