 Tone of narrative disclosures and earnings management: UK evidenceTamer Elshandidy and Hany Kamel Advances in accounting, 2024, vol. 64, issue C Abstract: This paper investigates whether a relationship exists between the tone of narrative disclosures and engagement in earnings management activities. Using FTSE all-share nonfinancial firms, our estimates show a significant association between the tone of narrative disclosure (measured by the percentage of positive words, negative words, and net tone) and the prevalence of earnings management. The results also suggest that manipulating firms, which represent extreme cases of earnings management, are more likely to use less negative tone to conceal their fraudulent practices. In contrast, non-manipulating firms tend to use more positive tone to mask their involvement in managing earnings. Additionally, the paper examines the market reaction to both earnings management and the tone of narrative disclosure. The findings reveal that earnings management and net tone are positively associated with abnormal market returns for non-manipulating firms, but have no significant association for manipulating firms. Overall, the paper highlights the important role of the tone of narrative disclosures in providing clarity to the numbers presented in annual reports. Keywords: Textual analysis; Tone of narrative disclosures; Earnings management (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:advacc:v:64:y:2024:i:c:s088261102300069x DOI: 10.1016/j.adiac.2023.100710 Access Statistics for this article Advances in accounting is currently edited by Dennis Caplan More articles in Advances in accounting from Elsevier |
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