Study of the Impact of Annual Report Text Tone on Corporate Financing Constraints

Mingjie Wu

doi:10.54097/hbem.v9i.7843

Authors

Mingjie Wu

DOI:

https://doi.org/10.54097/hbem.v9i.7843

Keywords:

Annual Report Text Tone; Financing Constraints; Media Attention.

Abstract

Based on the incremental information theory, this paper examines the impact of annual report text tone on corporate financing constraints using a fixed-effects model with a sample of listed Chinese A-share enterprises in Shanghai and Shenzhen from 2008 to 2021. The findings show that positive annual report text tone can effectively alleviate firms' financing constraints, which remains robust after considering the self-selection problem of the model, omitted variables and the lagged effects of the independent variables. Further, the paper analyses the mediating and moderating effects of the relationship between the tone of annual report texts and corporate financing constraints. For the mechanism analysis, the paper examines the mechanism role of media attention. In terms of moderating effects, two macro-level variables, namely the level of regional economic development and the quality of the institutional environment; one meso-level variable, industry concentration; and three micro-level variables, namely the quality of internal control, equity structure and life cycle, are selected for analysis. The findings obtained from this paper have implications for the expansion of effective disclosure of annual reports by companies and for investors' proper understanding of the role of incremental textual information in annual reports for investment decisions.

Downloads

Download data is not yet available.

References

Healy P M, K G Palepu. The effect of firms financial disclosure strategies on stock prices [J]. Accounting Horizons, 1993, 7(1):1-11.

Hall E. T., Beyond culture [M]. Chicago, 1976, 43(7), 4-20.

Zeng Qingsheng, Zhou Bo, Zhang Cheng, Chen Xinyuan. Annual report tone and insider trading: "One voice" or "one mouth, one heart"? [J]. Management World, 2018, 34(09): 143-160.

Wang Huajie, Wang Kemin. A study on accrual manipulation and annual report text information tone manipulation [J]. Accounting Research, 2018, (04): 45-51.

Fu Wenbo, Zeng Hao. Can non-punitive regulation restrain management tone manipulation - empirical evidence based on annual report texts[J]. Contemporary Finance and Economics, 2022, (03): 89-101.

Sun Bo, Liu Shansi, Jiang Junhui, Ge Chunmian, Zhou Huai Kang. Corporate financing constraints and innovation performance: a human capital social network perspective [J]. China Management Science, 2019, 27(04): 179-189.

Yu Lifeng, Tang Ya, Xu Jianguo. Financing constraints, share price information content and investment - share price sensitivity [J]. Financial Research, 2014, (11): 159-174.

Fazzari S, Hubbard R G, Petersen B C. Financing constraints and corporate investment [R]. Brookings Papers on Economic Activity, 1988, (19), 141-195.

Hughes J S, Liu J. Information asymmetry, diversification, and cost of capital [J]. The Accounting Review, 2007, 82, (3):705-729.

Kaplan S. N, Zingales L. Do investment-cash flow sensitivities provide useful measures of financing constraints?[J]. The Quarterly Journal of Economics, 1997, 112(1): 169-215.

Wang Bijun, Tan Yuyan, Yu Miaojie, Huang Yiping. Does financing constraint inhibit outward foreign direct investment by Chinese private enterprises [J]. World Economy, 2015, (12): 54-78.

Whited T. M. and Wu G. Financial constraints risk [J]. The Review of Financial Studies, 2006, 19(2): 531-559.

Hadlock C J, J P Pierce. New evidence on measuring financial constraints: Moving Beyond the KZ Index. Review of Financial Studies, 2010, 23 (5): 1909- 1940.

Zhang JX, Wang Y. Accounting robustness and corporate finance constraints - a study based on two types of robustness perspectives [J]. Accounting Research, 2013(09): 44-50.

Lian Yunjun, Cheng Jian. Investment-cash flow sensitivity: financing constraints or agency costs? [J]. Financial Research, 2007, (02): 37-46.

Jiang Teng, Zhang Yongji, Zhao Xiaoli. Economic policy uncertainty and corporate debt financing [J]. Management Review, 2018, 30(03): 29-39.

Wang Wenhua, Zhang Zhuo. Financial development, government subsidies and R&D financing constraints - empirical evidence from A-share listed high-tech companies[J]. Economic and Management Research, 2013, (11): 51-57.

Qiang Haofan, Yan Han, Zhang Wencheng, Xiao Kangkang. State-owned venture capital and corporate financing constraints: As hoped or against the grain? [J]. Financial Research, 2021, 47(11): 154-169.

Fu Haoliang, Li Keo-Bo, Lu Yin. Annual report text tone manipulation and the risk of share price collapse [J]. Financial Accounting Newsletter, 2021, (17): 72-77.

Booth J R, Deli D N. On executives of financial institutions as outside directors [J]. Journal of Corporate Finance, 1999, 5(3): 227-250.

Lang M H, Lundholm R J. Corporate disclosure policy and analyst behavior [J]. Accounting Review, 1996, 71(4): 467-492.

Pittman J A, Fortin S. Auditor choice and the cost of debt capital for newly public firms [J]. Journal of Accounting and Economics, 2004, 37(1): 113-136.

Lu Dong, Song Xinbei. Media coverage, readability of listed companies' annual reports and financing constraints [J]. Journal of Management Science, 2021, 24(12): 45-61.

Loughran T, Mcdonald B. When is a liability not a liability? Textual analysis, dictionaries, and 10 Ks [J]. Journal of Finance, 2011, 66(1):35-65.

Li Xiaoxi, Rao Pingui, Yue Heng. Annual report inquiry letters and management performance forecasts [J]. Management World, 2019, 35(08): 173-188+192.

Baginski S P, Hassell J M, Hillison W A. Voluntary causal disclosures: tendencies and capital market reaction [J]. Review of Quantitative Finance & amp; Accounting, 2000, 15(4):371-389.

Spence M, "Job Market Signaling", Quarterly Journal of Economics, 1973, 87(3), 355-374.

Tet-lock P C, "Giving Content to Investor Sentiment: The Role of Media in the Stock Market", Journal of Finance [J], 2007. 62(3), 1139-1168.

Ferris S P, Q Hao and M Y Liao, "The Effect of Issuer Conservatism on IPO Pricing and Performance" [J], Review of Finance. 2013, 17(3), 993-1027.

Li Shigang, Jiang Yaoming. Does the tone of textual information in listed companies' annual reports affect audit opinions? [J]. Accounting Research, 2020, (05): 178-192.

Liang, Rixin., Li, Ying. Annual report text tone and audit fees - empirical data from A-share listed companies in China [J]. Audit Research, 2021, (05): 109-119.

Leung S, Parker L, Courtis J. Impression management through minimal narrative disclosure in annual reports [J]. British Accounting Review, 2015(3) : 275-289.

Zhou Bo, Zhang Cheng, Zeng Qingsheng. Annual report tone and share price crash risk - empirical evidence from Chinese A-share listed companies [J]. Accounting Research, 2019, (11): 41-48.

Ertugrul M, Lei J, Qiu J, Wan C. Annual Report Readability, Tone Ambiguity, and the Cost of Borrowing [J]. Journal of Financial and Quantitative Analysis, 2017, 52, (2): 811-836.

Wang Xiongyuan, Zeng Jing. Annual report risk disclosure and bank lending rates [J]. Beijing: Financial Research, 2019, (1): 54-71.

Price M K, Doran J S, Peterson D R, et al. Earnings conference calls and stock returns: the incremental informativeness of textual tone [J]. Journal of Banking & Finance, 2012, 36(4):992-1011.

Zhao Yuliang. A study on the impact of annual report net tone on corporate debt financing [J]. Economic Management, 2020, 42(07): 176-191.

Xie, D. R., Lin, L. Can management tone predict the future performance of a company? -- A textual analysis based on annual earnings presentations of listed companies in China [J]. Accounting Research, 2015, (02): 20-27+93.

Wu Wenfeng, Wu Chongfeng, Rui Meng. Government background and tax benefits of executives in Chinese listed companies [J]. Management World, 2009, (03): 134-142.

Bu Danlu, Wang Xiaoyan. Government subsidies, soft constraints and the pay gap [J]. Nankai Management Review, 2014, 17(02): 23-33.

Dai Lu, Song Di. The impact of mandatory design of executive equity incentive contract performance targets on firm management performance [J]. China Industrial Economics, 2018, (04):117-136.

Xu N, X Li, Q Yuan and K C Chan, "Excess perks and stock price crash risk: Evidence from china" [J], Journal of Corporate Finance, 2014, 25(2), 419-434.

Arellano M, Bover O. Another look at the instrumental variable estimation of error-components models [J]. Journal of Econometrics, 1995, 68(1):29-51.

Petersen M A. Estimating standard errors in finance panel data sets: Comparing approaches [J]. Review of Financial Studies, 2009, 22 (1): 435-480.

Davis A K, Piger J M, Sedor L M. Beyond the Numbers: Measuring the Information Content of Earnings Press Release Language[J]. Contemporary Accounting Research, 2012, 29, (3): 845-868.

Jiang Fuxiu, Zhang Min, Lu Zhengfei, Chen Caidong. Managerial overconfidence, corporate expansion and financial distress [J]. Economic Research, 2009, 44(01): 131-143.

Qi Jiangna, Chen Huilin, Zhang Qinyuan. Firm size, brand, price and audit quality: A study of fees and quality in the international "Big Four" audit market in China [J]. Audit Research, 2004, (03): 59-65.

Yi Zhihong, Zhu Lin, Chen Qinyuan. Negative disclosure of analyst research reports and the risk of stock price plunges [J]. Nankai Management Review, 2019, 22(05): 192-206.

Bushee B J, J E Core, W Guay, and J Wee, "The Role of the Business Press as an Information Intermediary" [J], Journal of Accounting Research, 2010, (48): 1-19.

Wen Zhonglin, Zhang Lei, Hou Jietai et al. Mediated effects testing procedures and their applications [J]. Journal of Psychology, 2004, (05): 111-117.

Wang Xiaolu, Fan Gang, Hu Lipeng. China marketization index report by provinces (2018) [M]. Social Science Literature Press, 2019.

Dou Chao, Wang Qiaoyuan, Chen Xiao. Can government background customer relationship alleviate private enterprises' financing constraints? [J]. Financial and Economic Research, 2020, (11): 49-63+168.

Harford J. Corporate cash reserves and acquisitions [J]. The Journal of Finance, 1999, 54(6): 1969-1997.

Kim J B, Zhang L. Financial Reporting Opacity and Expected Crash Risk: Evidence from Implied Volatility Smirks [J]. Contemporary Accounting Research, 2014(31):851-875.

Li Yunhe, Li Zhan, Tang Songlian. Corporate life cycle, corporate governance and efficiency of corporate capital allocation [J]. Nankai Management Review, 2011, 14(03): 110-121.