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Effect of positive tone in MD&A disclosure on capital structure adjustment speed: evidence from China

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  • Qian Wang
  • Duowen Wu
  • Lina Yan

Abstract

We explore the influence of text tone on capital structure, especially the impact of positive tone in management discussion and analysis (MD&A) disclosures on the capital structure adjustment speed of Chinese listed firms in Shanghai and Shenzhen Stock Exchange. We find that positive tone in MD&A disclosures significantly promotes the dynamic adjustment of capital structure. Specifically, we identify two types of positive tone: exaggerated and true. We find that only true positive tone significantly promotes the adjustment speed of capital structure. This paper supplements the relevant literature on the dynamic adjustment of capital structure from the perspective of non‐financial narrative information, and provides evidence for the effect of strategic tone management in textual analysis.

Suggested Citation

  • Qian Wang & Duowen Wu & Lina Yan, 2021. "Effect of positive tone in MD&A disclosure on capital structure adjustment speed: evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(4), pages 5809-5845, December.
    • Handle: RePEc:bla:acctfi:v:61:y:2021:i:4:p:5809-5845
    DOI: 10.1111/acfi.12777
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    2. 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).
    3. Yingying Xin & Xiao Zeng & Zhengying Luo, 2022. "Customers' tone in MD&A disclosure and suppliers' inventory efficiency: Evidence from China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3833-3853, December.
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    5. Bassyouny, Hesham & Abdelfattah, Tarek & Tao, Lei, 2022. "Narrative disclosure tone: A review and areas for future research," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 49(C).

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