Annual report readability, ESG disclosure, and risk perspectives of Indian firms: the mediating role of corporate governance and earnings management

S. M. R. K. Samarakoon (), R. K. Mishra (), Rudra P. Pradhan, Manju Jayakumar () and Tapan P. Bagchi ()
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S. M. R. K. Samarakoon: Indian Institute of Technology
R. K. Mishra: Indian Institute of Technology
Rudra P. Pradhan: Indian Institute of Technology
Manju Jayakumar: Indian Institute of Technology
Tapan P. Bagchi: Indian Institute of Technology

International Journal of Disclosure and Governance, 2025, vol. 22, issue 3, No 7, 678-705

Abstract: Abstract This study aimed to investigate the impact of disclosure tone on firm value, financial performance, and cost of capital by analyzing the textual properties of annual reports from a large panel dataset of 10,809 firm-year observations from 1292 non-financial firms listed on the National Stock Exchange of India from 2008 to 2021. Additionally, the study examined how disclosure tone is determined across firms engaged in earnings management practices. The findings are as follows: (1) businesses are more likely to engage in earnings management practices if their annual reports contain a higher percentage of positive phrases; (2) the optimistic disclosure tone of annual reports was found to have a negative correlation with independent directors and gender diversity; (3) a strong positive correlation exists between positive disclosure tone and firm value, with profitability as measured by return on assets supporting this association; (4) financial performance was shown to determine tone, rather than the other way around; (5) companies used a positive tone when there was no risk of bankruptcy while reducing their use of negative tones; and (6) the study demonstrated that disclosure tone, particularly negative and litigious tones, had distinct associations with the cost of capital and its components.

Keywords: Annual report disclosure tone; Corporate governance; Cost of capital; Earnings management; Financial distress (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1057/s41310-024-00272-1

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