Managerial Language Tone And Corporate Financial Crisis Prediction

Promoting the soundness and stability of multi-level capital markets is a major task for the development of the socialist market economic system.However,in recent years,capital market risk events have frequently exploded in China,which posed a great threat to its prosperity.Since 2014,the number of bond default events has increased year by year and new default entities have continuously emerged,thus the violation of market rigid redemption has entered a new normal.With the frequent occurrence of negative information or events,the stock market also fluctuated in that process.The listed company's equity is pledged at a high level thus it may accelerate the probability of systemic risks.The dramatic changes of goodwill impairment and business performance have astonished the awareness of investors.The 2019 government work report once again headlined the importance of the sound development of the capital market and proposed to strengthen financial risk monitoring,early warning and resolution.The increase of capital market risk events undermines the interests of investors as well as their investment enthusiasm and confidence.For investors,how to effectively prevent and forecast such risks is becoming more and more important,so the subject of financial crisis forecast naturally enjoys a great value under such background.Information is at the heart of maintaining the stability of capital market.Adequate information disclosure can effectively alleviate the information asymmetry between investors and companies so that to reduce the risks,it can also promote the allocation of resources,protect the interests of investors and safeguard the operation of the market.As a public source in the capital market,accounting information can provide an important basis for investors to make decisions.The existing research reveals that the accounting digital information has been widely concerned and used by investors in the past,but as another type of the information,the value of text information has received less attention.The increase of market risks requires investors to use multiple types of information to improve the accuracy of their decision-making.The company's annual report is the main carrier of accounting information and two-thirds of the content is presented in the form of text description.As the core of the text information in the annual report,management discussion and analysis is a comprehensive review of the company's operation and impose a blueprint from the perspective of management layer.Compared to the retrospective analysis,the future outlook will provide some important predictive information and is the center of the entire management discussion and analysis.Therefore,whether the management's future outlook can provide some useful information or can it help investors to predict risks and improve the efficiency of decisions is worth studying.The development of modern natural language processing has made it possible to quantify large sample text information.As a result,research on the feature of textual language and their specific content has sprung up.Existing studies on financial crisis prediction showed that financial indicators play an important role in this process and can provide a higher accuracy.Compared with the digital information of financial indicators,text information has its natural advantages,so can it provide incremental information in financial crisis prediction? As one of the basic characteristics of the text information language,intonation reflects the emotional attitude of the information subject and is one of the important fields of text information research.The tone of management discussion and analysis reflects their overall judgment of the future of the company.Therefore,this paper studies the value of forward-looking text information in financial crisis prediction from the perspective of managerial language tone.On the basis of the existing research,this paper studies on the next three levels:(1)Whether the managerial language tone of the forward-looking text information is significantly related to the financial crisis of the enterprise and whether it can improve the accuracy of crisis prediction?(2)What is the mechanism of managerial language toneto help investors improve their financial crisis prediction and will there be a difference under different information constraint environments?(3)Considering the bias of accounting information,will themanagerial language tone affect the prediction under the self-interest motivation.This paper takes the 2007-2017 A-share listed company as research sample and uses python programming technology to intercept the forward-looking text information and then measure its tone.And the empirical research method is used in the study of the managerial language tone and the corporate financial crisis forecast.The research reveals:First,the overall intonation of the forward-looking textual information management's net optimistic tone is significantly negatively correlated with the probability of a company's future financial crisis and it can improve the accuracy of financial crisis prediction.The results are still valid after controlling endogeneity,considering corporate governance missing variables,changing management's net optimistic tone measurement,financial crisis definition criteria or conducting industry average adjustments such as endogenous and robustness tests.What's more,the research indicates that the negative pessimistic tone of forward-looking text information is significantly positively correlated with the probability of financial crisis and can also improve the accuracy of crisis prediction,while positive optimistic tone is not significantly related.From the perspective of forecasting time,the net optimistic tone of the forward-looking text information management and the probability of financial crisis are correlated in a three-year period and the accuracy rate increases with the approach of the financial crisis.Evidence from market reactions shows that after further controlling auditing opinions and other competitive sources of information reflecting crisis information,management's net optimistic tone,negative intonation,short-term and long-term market response are significantly positively correlated.This result indicates that investors can recognize the connotation of the forward-looking information and are more sensitive to the negative ones.Secondly,based on the mediating effects research method,the analyst's earnings forecast bias is taken as the information asymmetric proxy variable,and the ROA fluctuation in the next three years is taken as the agent variable of the investor's understanding for the future operation of the enterprise.Partial mediation effect between tone of voice and corporate financial crisis prediction,that is,the managerial language toneof forward-looking information improve the prediction of corporate financial crisis by alleviating information asymmetry and enhancing investors' pre-judgment.Based on the grouping effects study,when the external analysts pay lower attention and the institutional investors' shareholding ratio is lower,the management net optimistic tone,negative pessimistic tone and the company's future financial crisis probability are more relevant,and the accuracy of the financial crisis prediction is higher.The results show that when the external information environment is poor,managerial language toneof the forward-looking information can alleviate the information asymmetry and improve the ability of financial crisis prediction.Further research found that media reports can play a complementary role in improving the predictive value of managerial language tone when the information environment is unfavorable.Considering the macro-marketization process and the endogenous system of enterprises(the constraint effect of internal control quality),the research finds that when the process is slower and the quality of internal control is lower,the managerial language tone will have a higher contribution to crisis prediction.Third,from the perspective of social psychology,this study finds thatthere has impression management behaviors in forward-looking information transmission,which is characterized by excessive optimism,and the higher the degree of excess optimism,the lower the probability of financial crisis in the future.From the perspective of the interaction between textual information manipulation and digital information manipulation,it is found that the tone manipulation of management in coordination with earnings management will weaken the correlation between excess optimism and the probability of financial crisis.The results are still valid after considering endogenous and robustness tests such as management over-optimistic features,accounting standards revision shocks and PSM sample pairing.Further,based on the theory of fraud triangle and from the strength of self-interested motives and the size of opportunistic space,the research finds that When the management monetization salary incentive level is lower,the stock incentive level is lower,and the on-the-job consumption level is higher,the management opportunism motivation is stronger,and the negative impact of earnings management on the usefulness of managerial language tone in financial crisis prediction is stronger.The results show that lower information transparency,higher information asymmetry and the weaker supervision environment create space for management opportunistic behavior.In such environment,earnings managements play stronger role in the relationship between forward-looking information excess optimism tone and financial crisis prediction.The possible research contributions of this paper are as follows:First,based on the institutional background of China,this paper studies the incremental effect of management intonation on financial crisis prediction in the forward-looking information of the annual report,and enriches the research on the relationship between text information and financial crisis prediction.Under the institutional background and cultural language habits of China,the definition criteria of financial crisis are different from those of foreign “bankruptcy”.The text information disclosure paradigm and language expression habits are different from those in foreign countries.Based on China's institutional and cultural and linguistic contexts,this study focuses on MD&A forward-looking information,systematically and in-depth study of the incremental effect of the information tonal characteristics on financial crisis prediction,and further studies its impact mechanism,information environment and tone management.Compared with existing research,this study is more comprehensive and in-depth.Second,this research expands the selection of financial crisis prediction indicators,and helps to construct a comprehensive financial crisis prediction model with quantitative information and qualitative information,thus providing a richer source of information for investors' decision-making.The existing crisis prediction indicators are mainly quantitative indicators.While this study adds quantitative qualitative indicators to the crisis prediction quantitative indicators based on text analysis.The research finds that qualitative text information can provide incremental contribution to financial crisis prediction and enrich the study on the selection of financial crisis prediction indicators.Thirdly,this paper enriches and deepens the research on textual information.This study examines the impact of managerial language on the predictive value of text information intonation from the perspective of impression management and opportunistic earnings management.The existing researches prone to study the managerial language behaviors in text information from the perspective of influencing factors.Based on the previous studies,this paper further analyzes the influence of managerial language and opportunistic behavior on financial crisis prediction and expands it to a deeper level.