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Beyond Cheap Talk: Management's Informative Tone in Corporate Disclosures

This study investigates the information content of Management Discussion and Analysis (MD&A) reports of listed Chinese companies. We develop a Chinese word dictionary and measure the tones of MD&As. Our results indicate that tone is positively associated with future earnings and is particularly useful when a firm's future prospect is uncertain, accounting information is difficult to understand, or board monitoring is strong. Further analyses show that tone also predicts future cash flow, future sales growth, market reactions, analysts’ revisions, and institutional investors’ shareholdings. Together, we provide robust evidence that in emerging markets such as China, management tone conveys valuable information beyond cheap talk.