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.