Does Accounting Conservatism Discipline Qualitative Disclosure? Evidence From Tone Management in the MD&A*
Carlo D'Augusta, Matthew D. DeAngelis
Contemporary Accounting Research · 2020 · Volume 37 · Issue 4
Abstract
We investigate whether accounting conservatism, which has been found to be effective in constraining management opportunism in other settings, constrains upward tone management (UTM) in the Management's Discussion and Analysis (MD&A) portion of the 10-K filing. We hypothesize that conservatism makes it harder for managers to opportunistically downplay bad news and magnify good news when discussing current performance. Consistent with this hypothesis, we find that UTM is negatively associated with several accounting conservatism proxies. Additionally, we hypothesize and find that this association is stronger for firms where managers have higher incentives to manipulate tone. In supplemental analyses, we find evidence to suggest that our results are not due to an endogenous relationship between conservatism and UTM. We also find that conservatism neither encourages downward tone management (DTM) nor constrains managers from conveying real information about future good news. Together, our results suggest that accounting conservatism improves disclosure narratives.
Keywords
tone management, accounting conservatism, qualitative disclosure, textual data, tone analysis, gestion du ton, prudence comptable, information qualitative, données textuelles, analyse du ton
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