Inconsistency in Managers’ Disclosure Tone: The Signalling Perspective

Azam Pouryousof, Farzaneh Nassirzadeh () and Davood Askarany
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Azam Pouryousof: Faculty of Management, Economics & Accounting, Payame Noor University, Tehran 19395-4697, Iran
Farzaneh Nassirzadeh: Faculty of Economics and Administrative Sciences, Ferdowsi University of Mashhad, Mashhad 9177948951, Iran
Davood Askarany: Department of Accounting & Finance, University of Auckland, Auckland 1010, New Zealand

Risks, 2023, vol. 11, issue 12, 1-14

Abstract: This article examines the factors contributing to the disparity in managers’ disclosure tone from a signalling perspective. According to this viewpoint, managers intentionally choose their tone to convey information to the market. To determine the origin of tone inconsistency, we explored the association between future financial performance (as measured by the rate of return on assets (ROA) and rate of return on equity (ROE)) and future financial risk (as measured by the standard deviation of ROA and ROE) with the tone of management discussion and analyses (MD&As). The Loughran and McDonald dictionaries were utilised to assess managers’ tone in the MD&As. Our dataset consisted of 1510 MD&As from 156 companies listed on the Tehran Stock Exchange, covering 2013 to 2022. Multiple regression analysis was employed, controlling for industry and year fixed effects. The findings revealed a significant relationship between future financial performance, future financial risk, and MD&A tone inconsistency. Thus, the biased tone observed in Iranian managers’ MD&As can be explained by signalling theory. This study contributes to the existing literature by being the first to investigate signalling as a source of inconsistency in managers’ disclosure tone.

Keywords: written tone; tone inconsistency; signalling theory; future returns; future risk (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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