123
Views
0
CrossRef citations to date
0
Altmetric
Research Article

Annual report tone and divergence of opinion: evidence from textual analysis

&
Article: 2354641 | Received 18 Feb 2023, Accepted 02 May 2024, Published online: 19 May 2024

References

  • Abdel-Meguid, A. M., Fernando, G. D., Schneible, R. A., Jr., & Suh, S. (2019). Differential interpretations and earnings quality. Accounting Horizons, 33(2), 59–19. https://doi.org/10.2308/acch-52435
  • Ahmed, A. S., Song, M., & Stevens, D. E. (2009). Earnings characteristics and analysts’differential interpretation of earnings announcements: An empirical analysis. Accounting & Finance, 49(2), 223–246. https://doi.org/10.1111/j.1467-629X.2008.00292.x
  • Ataullah, A., Vivian, A., & Xu, B. (2018). Optimistic disclosure tone and conservative debt policy. Abacus-A Journal of Accounting Finance and Business Studies, 54(4), 445–484. https://doi.org/10.1111/abac.12140
  • Baginski, S. P., Demers, E., Kausar, A., & Yu, Y. J. (2018). Linguistic tone and the small trader. Accounting, Organizations & Society, 68, 21–37. https://doi.org/10.1016/j.aos.2018.03.005
  • Banerjee, S. (2011). Learning from prices and the dispersion in beliefs. The Review of Financial Studies, 24(9), 3025–3068. https://doi.org/10.1093/rfs/hhr050
  • Barinov, A. (2015). Why does higher variability of trading activity predict lower expected returns?. Journal of Banking and Finance, 58, 457–470.
  • Barron, O. E., & Stuerke, P. S. (1998). Dispersion in analysts’ earnings forecasts as a measure of uncertainty. Journal of Accounting, Auditing & Finance, 13(3), 245–270. https://doi.org/10.1177/0148558X9801300305
  • Bassyouny, H., Abdelfattah, T., & Tao, L. (2020). Beyond narrative disclosure tone: The upper echelons theory perspective. International Review of Financial Analysis, 70, 101499. https://doi.org/10.1016/j.irfa.2020.101499
  • Berkman, H., Dimitrov, V., Jain, P. C., Koch, P. D., & Tice, S. (2009). Sell on the news: Differences of opinion, short-sales constraints, and returns around earnings announcements. Journal of Financial Economics, 92(3), 376–399. https://doi.org/10.1016/j.jfineco.2008.04.009
  • Bochkay, K., & Levine, C. B. (2019). Using MD&A to improve earnings forecasts. Journal of Accounting, Auditing & Finance, 34(3), 458–482.
  • Boehmer, E., Saar, G., & Yu, L. (2005). Lifting the veil: An analysis of pre‐trade transparency at the NYSE. The Journal of Finance, 60(2), 783–815. https://doi.org/10.1111/j.1540-6261.2005.00746.x
  • Boudt, K., & Thewissen, J. (2019). Jockeying for position in CEO letters: Impression management and sentiment analytics. Financial Management, 48(1), 77–115. https://doi.org/10.1111/fima.12219
  • Brown, S. V., & Tucker, J. W. (2011). Large‐sample evidence on firms’ year‐over‐year MD&A modifications. Journal of Accounting Research, 49(2), 309–346. https://doi.org/10.1111/j.1475-679X.2010.00396.x
  • Cao, Q., Yang, F., & Liu, M. (2022). Impact of managerial power on regulatory inquiries from stock exchanges: Evidence from the text tone of Chinese listed companies’ annual reports. Pacific-Basin Finance Journal, 71, 101646. https://doi.org/10.1016/j.pacfin.2021.101646
  • Chang, Y. C., HSIAO, P. J., Ljungqvist, A., & Tseng, K. (2021). Testing disagreement models. The Journal of Finance, 77(4), 2239–2285. https://doi.org/10.1111/jofi.13137
  • Chen, T. (2020). Does news affect disagreement in global markets? Journal of Business Research, 109, 174–183. https://doi.org/10.1016/j.jbusres.2019.11.082
  • Chordia, T., Subrahmanyam, A., & Anshuman, V. R. (2001). Trading activity and expected stock returns. Journal of Financial Economics, 59(1), 3–32.
  • Cready, W., & Hurtt, D. (2002). Assessing investor response to information events using return and volume metrics. The Accounting Review, 77(4), 891–909. https://doi.org/10.2308/accr.2002.77.4.891
  • D’Augusta, C., Bar-Yosef, S., & Prencipe, A. (2016). The effects of conservative reporting on investor disagreement. European Accounting Review, 25(3), 451–485. https://doi.org/10.1080/09638180.2015.1042890
  • D’Augusta, C., De Vito, A., & Grossetti, F. (2023). Words and numbers: A disagreement story from post-earnings announcement return and volume patterns. Finance Research Letters, 54, 103694. https://doi.org/10.1016/j.frl.2023.103694
  • Davis, A. K., & Tama‐Sweet, I. (2012). Managers’ use of language across alternative disclosure outlets: Earnings press releases versus MD&A. Contemporary Accounting Research, 29(3), 804–837. https://doi.org/10.1111/j.1911-3846.2011.01125.x
  • De Franco, G., Hope, O. K., Vyas, D., & Zhou, Y. (2015). Analyst report readability. Contemporary Accounting Research, 32(1), 76–104. https://doi.org/10.1111/1911-3846.12062
  • Del Gaudio, B. L., Megaravalli, A. V., Sampagnaro, G., & Verdoliva, V. (2020). Mandatory disclosure tone and bank risk-taking: Evidence from Europe. Economics Letters, 186, 108531. https://doi.org/10.1016/j.econlet.2019.108531
  • Doukas, J. A., Kim, C. F., & Pantzalis, C. (2006). Divergence of opinion and equity returns. Journal of Financial and Quantitative Analysis, 41(3), 573–606. https://doi.org/10.1017/S0022109000002544
  • Druz, M., Petzev, I., Wagner, A. F., & Zeckhauser, R. J. (2020). When managers change their tone, analysts and investors change their tune. Financial Analysts Journal, 76(2), 47–69. https://doi.org/10.1080/0015198X.2019.1707592
  • Efretuei, E. (2021). Year and industry-level accounting narrative analysis: Readability and tone variation. Journal of Emerging Technologies in Accounting, 18(2), 53–76. https://doi.org/10.2308/JETA-18-12-21-26
  • Feldman, R., Govindaraj, S., Livnat, J., & Segal, B. (2010). Management’s tone change, post earnings announcement drift and accruals. Review of Accounting Studies, 15(4), 915–953. https://doi.org/10.1007/s11142-009-9111-x
  • Fischer, P., Kim, C., & Zhou, F. (2021). Disagreement about fundamentals: Measurement and consequences. Review of Accounting Studies, 1–34. https://doi.org/10.2139/ssrn.3515685
  • Gao, Y., Mao, C. X., & Zhong, R. (2006). Divergence of opinion and long‐term performance of initial public offerings. Journal of Financial Research, 29(1), 113–129. https://doi.org/10.1111/j.1475-6803.2006.00169.x
  • Garfinkel, J. A. (2009). Measuring investors’ opinion divergence. Journal of Accounting Research, 47(5), 1317–1348. https://doi.org/10.1111/j.1475-679X.2009.00344.x
  • Harris, M., & Raviv, A. (1993). Differences of opinion make a horse race. The Review of Financial Studies, 6(3), 473–506. https://doi.org/10.1093/rfs/5.3.473
  • Hassan, M. K., Abu-Abbas, B., & Kamel, H. (2022). Tone, readability and financial risk: The case of GCC banks. Journal of Accounting in Emerging Economies, 12(4), 716–740. https://doi.org/10.1108/JAEE-06-2021-0192
  • Henry, E. (2008). Are investors influenced by how earnings press releases are written? Journal of Business Communication, 45(4), 363e407. https://doi.org/10.1177/0021943608319388
  • Hildebrandt, H. W., & Snyder, R. D. (1981). The Pollyanna hypothesis in business writing: Initial results, suggestions for research. International Journal of Business Communication, 18(1), 5–15. https://doi.org/10.1177/002194368101800102
  • Huang, X., Teoh, S. H., & Zhang, Y. (2014). Tone management. The Accounting Review, 89(3), 1083–1113. https://doi.org/10.2308/accr-50684
  • Hu, S., Liu, M., Sohn, B. C., & Yuen, D. C. (2021). The impact of disclosure quality on analyst forecasts in China. In D. Li, (Ed.), Accounting forum (pp. 1–24). Routledge.
  • Jiang, F., Lee, J., Martin, X., & Zhou, G. (2019). Manager sentiment and stock returns. Journal of Financial Economics, 132(1), 126–149. https://doi.org/10.1016/j.jfineco.2018.10.001
  • Kim, O., & Verrecchia, R. E. (1994). Market liquidity and volume around earnings announcements. Journal of Accounting and Economics, 17(1–2), 41–67. https://doi.org/10.1016/0165-4101(94)90004-3
  • Kim, O., & Verrecchia, R. E. (1997). Pre-announcement and event-period private information. Journal of Accounting and Economics, 24(3), 395–419. https://doi.org/10.1016/S0165-4101(98)00013-5
  • Kim, O., & Verrecchia, R. E. (2001). The relation among disclosure, returns, and trading volume information. The Accounting Review, 76(4), 633–654. https://doi.org/10.2308/accr.2001.76.4.633
  • Lehavy, R., Li, F., & Merkley, K. (2011). The effect of annual report readability on analyst following and the properties of their earnings forecasts. The Accounting Review, 86(3), 1087–1115. https://doi.org/10.2308/accr.00000043
  • Liu, P., & Nguyen, H. T. (2020). CEO characteristics and tone at the top inconsistency. Journal of Economics and Business, 108, 105887. https://doi.org/10.1016/j.jeconbus.2019.105887
  • Liu, X., & Zhao, G. (2013). A comparative study of emotion metaphors between English and Chinese. Theory & Practice in Language Studies, 3(1). https://doi.org/10.4304/tpls.3.1.155-162
  • Lopatta, K., Gloger, M. A., & Jaeschke, R. (2017). Can language predict bankruptcy? The explanatory power of tone in 10‐K filings. Accounting Perspectives, 16(4), 315–343. https://doi.org/10.1111/1911-3838.12150
  • Loughran, T., & McDonald, B. (2011). When is a liability not a liability? Textual analysis, dictionaries, and 10‐Ks. The Journal of Finance, 66(1), 35–65. https://doi.org/10.1111/j.1540-6261.2010.01625.x
  • Luo, Y., & Zhou, L. (2020). Textual tone in corporate financial disclosures: A survey of the literature. International Journal of Disclosure & Governance, 17(2), 101–110. https://doi.org/10.1057/s41310-020-00077-y
  • Miller, E. M. (1977). Risk, uncertainty, and divergence of opinion. The Journal of Finance, 32(4), 1151–1168. https://doi.org/10.1111/j.1540-6261.1977.tb03317.x
  • Muslu, V., Radhakrishnan, S., Subramanyam, K. R., & Lim, D. (2015). Forward-looking MD&A disclosures and the information environment. Management Science, 61(5), 931–948.
  • Patelli, L., & Pedrini, M. (2014). Is the optimism in CEO’s letters to shareholders sincere? Impression management versus communicative action during the economic crisis. Journal of Business Ethics, 124(1), 19–34. https://doi.org/10.1007/s10551-013-1855-3
  • Purda, L., & Skillicorn, D. (2015). Accounting variables, deception, and a bag of words: Assessing the tools of fraud detection. Contemporary Accounting Research, 32(3), 1193–1223. https://doi.org/10.1111/1911-3846.12089
  • Shalen, C. T. (1993). Volume, volatility, and the dispersion of beliefs. The Review of Financial Studies, 6(2), 405–434. https://doi.org/10.1093/rfs/6.2.405
  • Shu, H., & Tan, W. (2022). Investor limited attention, opinion divergence, and post-earnings-announcement drift: Evidence from China. Emerging Markets Finance and Trade, 58(14), 1–16. https://doi.org/10.1080/1540496X.2022.2079975
  • Silva, D., & Cerqueira, A. (2021). Financial reporting quality and investors’ divergence of opinion. Accounting Perspectives, 20(1), 79–107. https://doi.org/10.1111/1911-3838.12250
  • Wierzbicka, A. (1999). Emotions across languages and cultures: Diversity and universals. Cambridge University Press.
  • Wisniewski, T. P., & Yekini, L. S. (2015). Stock market returns and the content of annual report narratives. Accounting Forum, 39(4), 281–294. https://doi.org/10.1016/j.accfor.2015.09.001
  • Woon Yee Ho, J. (2009). The language of anger in Chinese and English narratives. International Journal of Bilingualism, 13(4), 481–500. https://doi.org/10.1177/1367006908353235
  • Wu, D. X., Yao, X., & Guo, J. L. (2021). Is textual tone informative or inflated for firm’s future value? Evidence from Chinese listed firms. Economic Modelling, 94, 513–525. https://doi.org/10.1016/j.econmod.2020.02.027
  • Yang, F., Huang, J., & Cai, Y. (2022). Tone of textual information in annual reports and regulatory inquiry letters: Data from China. Emerging Markets Finance and Trade, 58(2), 417–427. https://doi.org/10.1080/1540496X.2021.1903870
  • Yuan, D., Shang, D., Ma, Y., & Li, D. (2022). The spillover effects of peer annual report tone for firm innovation investment: Evidence from China. Technological Forecasting and Social Change, 177, 121518. https://doi.org/10.1016/j.techfore.2022.121518
  • Zeng, Y. C., Klyuev, V., & Wu, S. H. (2012). An opinion mining technique for Chinese blogs. In J. J. Park, (Ed.), Future information technology, application, and service (pp. 281–289). Springer.
  • Zhang, X. F. (2006). Information uncertainty and analyst forecast behavior. Contemporary Accounting Research, 23(2), 565–590. https://doi.org/10.1506/92CB-P8G9-2A31-PV0R
  • Zhou, B., Zhang, C., & Zeng, Q. (2018). Does the rhetoric always hide bad intention: Annual report’s tone and stock crash risk. China Journal of Accounting Studies, 6(2), 178–205. https://doi.org/10.1080/21697213.2018.1522038