No. 88: Strategic use of tone in disclosures


The tone in the narrative part of annual reports is associated with reactions by capital markets. Managers can thus use the tone strategically to influence how information is perceived by the market and to maximize the firm value. We study the strategic use of tone in narrative disclosures and analyze how the tone choice is influenced by the company’s business strategy. The manager discloses reports that consist of backward-looking accounting information and a narrative part based on future expectations which may be biased by the tone. By comparing previous reports with current information, the market learns whether the manager’s tone has been biased. Biased reports have an impact on the market’s future evaluation of the firm. We find that the manager’s tone choice depends on the soft information the manager receives, i.e., whether this information is good or bad. To determine whether the soft information is good or bad, the manager considers expected future soft information, compensation, the strength of internal controls, and the market’s adjustment if the manager’s tone was biased. In addition, we show that the business strategy has an influence on the tone choice.

Beteiligte Institutionen

Die Hauptstandorte vom TRR 266 sind die Universität Paderborn (Sprecherhochschule), die HU Berlin und die Universität Mannheim. Alle drei Standorte sind seit vielen Jahren Zentren für Rechnungswesen- und Steuerforschung. Hinzu kommen Wissenschaftler der LMU München, der Frankfurt School of Finance and Management, der WHU – Otto Beisheim School of Management, der ESMT Berlin, der Goethe-Universität Frankfurt und der Carl von Ossietzky Universität Oldenburg, die die gleiche Forschungsagenda verfolgen.