My Hands Represent My Mind?

In various textual disclosures,report of the directors is the most detailed,which includes management's summary about the company's past operating performance and expectations about the future prospects.On the one hand,the tone of directors'report is closely related to the company's operating performance,operational risk,growth opportunities,business complexity and other economic fundamentals.On the other hand,compared with the financial data,the text information has characteristics such as difficult to quantify,low identification,high discretion and the lack of audit,which provides opportunities for the management to control tone.From investors'point,whether the text information of the directors' report signals useful information related to the value of the company,or further exacerbated the extent of quantitive information's confusing right and wrong?This is the main problem to be studied in this paper.Considering Chinese idiomaticity and financial expressions,we construct a vocabulary of 1425 positive words and 1583 negative words.Using the director's reports of all A-share listed companies from 2002-2015,we apply textual analysis to divide the management tone into normal part and abnormal part,and investigate the significance of ABTONE from the angles of investors and managers.The empirical results show that the market has positive short-term reaction to ABTONE.Further studies have found a positive correlation between ABTONE and the company's future performance in the next 1-3 years,indicating that ABTONE can provide incremental information about the company's future development.Finally,we prove that when the company has more R&D expenditures,bigger analysts forecast bias or better management expectations for future fundamentals,accounting data cannot convey the true information about the company's future development,so the management will rely on text information to show their strong confidence in the company's future development.The main innovation and contribution of this paper is that:Firstly,we explore how to apply textual analysis in China,which riches domestic research findings.This paper use the mainstream method of textual analysis abroad,constructing the reports database of listed companies and Chinese word lists to study value relevance of ABTONE and the behind management incentives.The attempt in this paper is significant in building Chinese textual analysis.Secondly,the conclusion drawn from this paper proves that the directors' report can signal value-relevance information,which reminds the investors the importance of mining text information.In addition,it reminds the regulators to establish evaluation standards for text disclosures,so as to create a good disclosure environment for listed companies and to better use text information in reducing the information asymmetry and improving the efficiency of capital market.