Annual Report Tone And Corporate Behavior

In the past 30 years,China's capital market has developed rapidly,and the number of listed companies has soared.As investors understand the basic information of the company,the annual report has gradually changed from a large amount of accounting information to a carrier containing rich company information.Information asymmetry is full of capital markets.It has always been a problem that plagues academic and real worlds.The annual report,as a link of information,its special status can be imagined.On the one hand,compa nies publish annual reports to let investors understand the company's performance and future direction.On the other hand,relevant institutional investors(brokers,banks,etc.)help companies reduce agency costs(Shleifer and Vishny,1986)and reduce financing costs by discriminating annual report information(Roberts and Yuan,2010).In addition,by interpreting the annual report,the analysts have made an important contribution to the expansion of the recognition of investors in listed companies and the asymmetry of corporate and market information.It is precisely because of the central position of the annual report in the information market that more literature has begun to explore the role of information transmission in the annual report.Most of the previous studies explored the company's future performance from the readability of the annual report(Li,2008;Bloomfield,2008;Lee,2012).At the same time,from the perspective of information extension,the impact of readability on analyst tracking is explored,and the role of readability on enterprise earnings management and investment efficiency is traced from the source of information.The nature of readability is to give investors a clearer understanding of the development of the company.Therefore,the more emotionally-oriented annual report tone is a useful and easy-to-understand disclosure method,which is useful information for investors,especially small and medium-sized investors.However,the focus of previous tone of text has also focused on the profit forecast of the capital market,and less closely linked the tone of the annual report with the business activities of listed companies.In recent years,some scholars have gradually turned their attention to the combination of intonation and production management,in order to dig deep into the impact of the annual report tone on business operations.However,the existing literature finds that the influence of intonation on listed companies is not unique,and sometimes even the opposite.On the one hand,the positive tone of the annual report is a concentrated expression of good corporate governance.This is because the annual report,as a window for the company's information transmission,can better inform investors about the company's operation and future development,increase the transparency of the company,and alleviate some of the principal-agent problems.At the same time,the release of the annual report will attract the attention of investors and analysts,and invisibly strengthen the supervision of the company itself.On the other hand,because the regulatory authorities are still in the blank period of tone monitoring,listed companies may use more positive tone and tone manipulation.For example,listed companies may use more positive vocabulary to guide investors and analysts to be positively optimistic about the company.This "manipulation effect" will eventually mislead external investors on the understanding of the performance of listed companies,which in turn will affect the normal business activities of the company and harm the interests of investors.Based on the above analysis,this paper focuses on the impact of the annual report intonation on its business activities.Specifically,it includes the following three aspects: First,analyzing and testing the relationship between the annual report tone and external financing,only confirms the positive impact of the annual report tone on external financing,can explain that the external market is more willing to accept the positive information of the enterprise,and is the foundation of positive effect of the corporate tone.Secondly,the relationship between the tone and innovation of the annual report is analyzed.If the tone of the annual report is found to be positively related to the company's innovation,it will provide strong support for the positive effect of the annual report.At the same time,it has expanded the logical chain of the annual report tone and financing.Thirdly,analyzing the influence of the annual report intonation on the company's cost stickiness,if it is found that the annual report tone suppresses the increase of the company's cost stickiness,it indicates that the positive tone has the function of self-monitoring,which makes the information transparency and authenticity increase,thus from the information issuer's The perspective confirms that the positive annual message tone is not ?expanded language? or ?cheap conversation?.The above specific studies are detailed as follows:(1)Annual report tone and external financing.The study found that the tone of the annual report is positively related to the external financing of the company,that is,the more positive the tone of the annual report,the more debt financing the company has,the lower the debt cost.This suggests that more positive tone will reduce information asymmetry and increase corporate transparency.Further analysis found that the positive correlation between the annual report tone and external financing in non-state-owned enterprises,large enterprises,and better financial environment is more significant.After using the instrumental variable method and replacing the annual report tone metrics,it was found that the annual report tone can still promote external financing of the enterprise.The mechanism test shows that the annual report tone affects the external financing of the enterprise through the two paths of external transmission mechanism(analyst)and internal transmission mechanism(intra-enterprise control),which provides basic evidence for the signal effect of the annual report tone.(2)The tone and innovation of the annual report.Based on the positive relationship between the annual tone and external financing,this part studies the relationship between the tone and innovation of the annual report.The results show that the research finds that the tone of the annual report is positively related to enterprise innovation,that is,the more positive the tone of the annual report,the more R&D investment the company has and the more R&D output.Further analysis shows that the annual report tone and enterprise innovation are more positively related to non-state-owned enterprises,small enterprises,and enterprises in areas with poor financial and legal environment.After using the instrumental variable method and Propensity Score Matching(PSM),it was found that the annual report tone can still promote innovation.The mechanism test shows that the tone of the annual report affects the innovation of the enterprise through the two paths of analysts and financing constraints,which supports evidence for the signal role of the annual report of listed companies.(3)The tone of the annual report and the cost stickiness.Cost stickiness is a manifestation of the company's inefficiency,and it is a concentrated expression of management's short-sightedness.Therefore,the corporate governance behavior of the annual report tone will allow us to observe some evidence in suppressing the cost stickiness.This part of the results found that the annual report tone will reduce the company's cost stickiness,that is,the more positive the annual report tone,the lower the company's cost stickiness.Further analysis found that the annual report tone is more negatively correlated with small enterprises,enterprises with low information transparency and high marketization levels.After using the instrumental variable method and Heckman two-step sample selection model,it is found that the annual report tone can still reduce the cost stickiness of the enterprise.For companies with a positive tone,less media attention,and a history of mergers and acquisitions,the tone of their annual report significantly reduces the stickiness of the company's expenses.Overall,the above conclusions indicate that the annual report has an important position in the business activities of the company,and the tone of the annual report will have an important impact on the behavior of the company.The innovation or contribution of this article may be:(1)Explicitly put forward the influence of the tone of the annual report on the business activities of listed companies.It is different from the previous literature focusing on the study of the tone of the capital market.This article does not focus on the impact of tone on the capital market,but specifically examines the impact of t he annual tone on the company's specific business behavior.This is of great significance for further understanding the impact of the annual tone on corporate behavior.(2)The research in this paper further enriches the relevant literature of the annual report intonation.In the past literature,the influence of the annual report intonation on earnings forecast and earnings management was discussed.There are few other perspectives on the role of the annual report tone to the company's management.Through empirical research,this paper finds that the signal effect of the annual report tone may exist in the actual operation of the enterprise.Although there are more and more scholars paying attention to such problems,the research on the annual report tone and the actual business behavior of listed companies is relatively rare.The research results of this paper show that with the increase of the positive tone of the annual report,the external financing and corporate innovation activities of the company have significantly increased,thus reflecting the positive tone effect of the annual report.This paper not only recognizes this positive tone effect,but also enriches the literature in related fields.At the same time,it provides evidence to support the in-depth understanding of the annual report tone as an internal mechanism of corporate governance.(3)This research has deepened an interactive understanding of the tone of the annual report and the management's self-interested behavior.In the past,most of the research examined the management manipulation from the behavior of the annual report tone affecting earnings manipulation.However,in practice,there are many kinds of self-interested behaviors of management.One of them is the cost stickiness of the company.As the external environment changes and the sales revenue of the company decreases,the management needs to consider which expenses need to be maintained,and then rationalize the income and expenditure.proportion.The management's short-sightedness may result in a cost that is not conducive to its own,and maintains the phenomenon of ?building an empire?.Then the tone of the annual report reduces the short-sighted behavior of management by increasing the transparency of the company,which in turn reduces the cost of the company.This part of the listed company's self-interested perspective not only further understands the corporate cost stickiness,but also provides a unique perspective on the tone of the annual report to the supervisory role of management.(4)In the real sense,due to the nature of ?cheap talk? in tone,the degree of language expansion depends entirely on the listed company itself.According to the empirical logic of this paper,it can be judged that the annual report tone meets the normal standards.For investors,the annual report is the information audited by the accounting firm,and the authenticity of its accounting information is beyond doubt.However,for investors with less sensitive financial information,it is possib le to invest in the company's prospects reflected in the tone of the annual report.For enterprise managers,on the basis of the constant accounting information,if the incremental tone of change can attract investors' attention,it will inevitably exaggerate the prospects of the company and confuse investors.However,the tone is ultimately based on actual performance,and the excessively inflated tone will reduce investor attention and attract more external supervision.For regulators,how to supervise the excessively positive tone of the company,to discriminate the over-rendering performance of the annual report of the company and its future development becomes a regulatory problem.According to the conclusions of this paper,the company will have a self-monitoring effect on the disclosure of the annual report,which will alleviate part of regulatory problems.In short,through research,this paper finds that the annual report tone can effectively reduce the degree of information asymmetry of enterprises,play an internal supervision role,and at the same time regulate and constrain the behavior of managers and effectively alleviate the problem of corporate principal-agents to improve corporate governance,thereby improving corporate financing and innovation,inhibiting cost stickiness.The above results verify the effectiveness of the internal and external governance role of the annual report tone,and provide empirical evidence for the influence of the annual report tone on the business behavior of the enterprise,indicating the important role and significance of the tone of the annual report.