The Joint Transfer Effect Of Abnormal Tone And Readability

In recent years,non-financial information disclosure has been continuously valued by the CSRC.However,compared to quantitative information,text information is more subtle and difficult to be regulated by laws,making management have more right to decide how to disclosure text information.Therefore,when quantitative disclosure is restricted,in order to influence investor judgment,management will strategically disclose text information such as manipulating text information characteristics(tone and readability).However,what's the motivation for management to manipulate tone and readability? Will this motivations vary and depend on performance? Does the management's strategic use of tone and readability mislead investors' judgments? If the management mislead investors' judgments,will institutional investors significantly reduce such deviations? Existing literatures do not have a clear answer about these for the study of the above problems,especially the joint transfer effects of tone and readability.This paper focuses on the management discussion and analysis(MD&A)of the annual report.Based on the management tones data in MD&A of Chinese listed companies from 2005 to 2015,this paper investigates above issues by using textual analysis method.Firstly,the sample is divided into eight categories based on the management motivation(performance),abnormal tone and the readability,the “good performance-positive-clear” group and “poor performance-negative-clear” group are the control groups.This paper aims to find out under what conditions,the management's strategic use of tone and readability will mislead investors and have negative impact on capital markets.After finished the works,we found that:(1)when the readability MD&A is high,abnormal negative tone when performance is good or abnormal positive tone when performance is poor will not influence investors' judgments;(2)when the performance of the listed company is good,investors react negatively to low readability and abnormal negative tone;(3)when the performance of the listed company is poor,investors will not influenced by low readability and abnormal positive tone;(4)compared with individual investors,institutional investors will not be affected by the abnormal negative tone of good performance,and institutional investors are easier to identify the management's self-interested intentions,thus reducing the bias of markets' judgement.The paper not only enrich the literature on the characteristics of text disclosure,but also provide theoretical guidance and realistic basis for the voluntary information disclosure policy and the improvement of investors' information screening capabilities.