The auditor–client relationship and abnormal tone: a simultaneous equations approach

Milad Darvishi, Mahmoud Lari Dashtbayaz, Roghayeh Mahmoudi Yekebaghi and Taqi Abdul Redha Al Abdwani

Asian Review of Accounting, 2025, vol. 34, issue 2, 273-297

Abstract: PurposeQuantitative information alone provides an incomplete picture of a company’s economic performance; therefore, the analysis of textual disclosures is critical. However, evidence suggests that managers can use the tone of disclosures to conceal their opportunistic actions. This is because words are more flexible in conveying impressions than numbers, and qualitative disclosures are voluntary, giving managers almost complete discretion over them. In contrast, quantitative disclosures adhere to standards and are monitored by independent auditors or the capital market. This study investigates how the abnormal tone in managerial disclosures interacts with the auditor-client relationship, offering new insights into the strategic use of language in financial reporting. By focusing on this intersection, the paper contributes to the literature not by advancing text analysis methods per se but by applying them to uncover novel dynamics in auditor-client communication and disclosure quality.Design/methodology/approachOur research, which utilizes a sample of 1,529 observations from 139 companies listed on the Tehran Stock Exchange, covers the period from 2012 to 2022. We employ a simultaneous equations approach, a robust methodology that allows us to analyze the mutual impact of abnormal tone in disclosures and the auditor-client relationship. To ensure the validity of our findings, we conduct robustness checks to confirm that they are not sensitive to changes in the measurement method of auditor-client relationship durability. This rigorous approach instills confidence in the reliability of our results.FindingsThe results provide new evidence that the auditor-client relationship and managers’ use of abnormal tone have a mutually positive impact on each other. Additionally, managerial overconfidence and conservatism are found to moderate this relationship. Further analyses reveal that the abnormal tone from the previous year also directly affects the auditor-client relationship, highlighting the persistence of these effects over time.Originality/valueThis research contributes to the literature by applying textual analysis to a novel context—auditor-client dynamics rather than proposing a new method. It highlights how the auditing environment influences qualitative disclosures, particularly tone and influence. These findings have practical implications for auditors, regulators, and investors. They emphasize the need to consider quantitative and qualitative signals in evaluating corporate transparency and governance.

Keywords: Auditor-client relationship; Auditor tenure; Abnormal tone; Tone management; Overconfidence; Conservatism (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/ara/article/34/2/273/12723 ... ip-and-abnormal-tone (text/html)
https://www.emerald.com/ara/article-pdf/34/2/273/10057988/ara-12-2024-0384en.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:arapps:ara-12-2024-0384

DOI: 10.1108/ARA-12-2024-0384

Access Statistics for this article

Asian Review of Accounting is currently edited by Prof. Haiyan Zhou

More articles in Asian Review of Accounting from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().