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Textual tone in corporate financial disclosures: a survey of the literature

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  • Yan Luo

    (San Diego State University)

  • Linying Zhou

    (California State University San Marcos)

Abstract

This study reviews the research on the usefulness, determinants, and measurements of the textual tone of corporate financial disclosures. This review suggests that various stakeholders (e.g., investors, analysts, and auditors) use the tone of corporate financial disclosure to infer management’s private information on the company’s prospects, risks, firm value, and operational outcomes. The tone of corporate financial disclosure is jointly determined by a number of factors, including corporate operational characteristics (e.g., financial performance, size, growth, volatility), management opportunism (e.g., stock-based compensation, seasoned equity issuance, merger and acquisition, etc.), and management characteristics (e.g., optimistic tendency, CEO narcissism, CEO/CFO age, etc.). This study also summarizes the four major methods for measuring tone using textual analysis technologies. This study is the first review of the growing body of research on the determinants of the tone of corporate financial disclosure and the usefulness and measurement of such tone. It will be very useful to researchers, directors and officers, investors, and regulators around the world.

Suggested Citation

  • Yan Luo & Linying Zhou, 2020. "Textual tone in corporate financial disclosures: a survey of the literature," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 17(2), pages 101-110, September.
    • Handle: RePEc:pal:ijodag:v:17:y:2020:i:2:d:10.1057_s41310-020-00077-y
    DOI: 10.1057/s41310-020-00077-y
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    2. Luminita Enache & Hila Fogel‐Yaari & Heather Li, 2022. "Signalling long‐term focus through textual emphasis on innovation: are firms putting their money where their mouth is?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(3), pages 3791-3836, September.
    3. Lonwabo Mlawu & Frank Ranganai Matenda & Mabutho Sibanda, 2023. "Linking Financial Performance with CEO Statements: Testing Impression Management Theory," Risks, MDPI, vol. 11(3), pages 1-16, March.
    4. Yuan, Dongliang & Shang, Duo & Ma, Yufei & Li, Dehui, 2022. "The Spillover Effects of Peer Annual Report Tone for Firm Innovation Investment: Evidence from China," Technological Forecasting and Social Change, Elsevier, vol. 177(C).

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