Fund social network and abnormal positive tone in MD&A disclosures

We investigate whether the fund social network matters abnormal positive tone (ABTONE) in Management's Discussion and Analysis (MD&A). By constructing a fund social network among active mutual fund managers, we find a negative relationship between fund social network density and ABTONE in MD&A. Our finding indicates that the fund social network plays a governance role in management's ABTONE. This conclusion remains across a variety of tests, including the reconstruction of the main variables, change to the sample, control for firm fixed effects, and endogeneity checks using matching methods, instrumental variables and Heckman two-stage methods. The information transparency and fund joint on-site visits are the potential governance channels. Cross-sectional analysis results show that the fund social network's governance role as an informal institution is more pronounced when the company's internal and external governance environments are poor. Additionally, both alumni and colleague fund social network density can mitigate the ABTONE. We provide empirical evidence that the institutional investors' social networks, beyond shareholding connections, play an important governance role in the quality of MD&A information disclosure.