Concealment and detection: The influence of management tone on analyst forecast revisions

Non-financial information disclosures driven by managers' expropriation motivations obscure and misrepresent a company's actual performance, discouraging capital market efficiency. This study examines analysts' sensitivity to management tone in earnings forecast revisions using data from Chinese publicly listed firms (2007–2022). Key findings are as follows: (1) Analysts reduce forecast revisions when the management tone in annual reports is overly positive. This finding indicates that Chinese securities analysts can perceive expropriation motives in the non-financial information disclosed by companies; (2) Only star analysts effectively detect expropriation motives. (3) Companies engaged in financing and margin trading exhibit improved transparency, curbing managerial opportunism and reducing tone's impact on forecasts. (4) Institutional investors identify distorted information, partially substituting for analysts in detecting self-interest and diminishing tone's influence. This study provides insights into analysts' role in recognizing the expropriation of shareholder interests in changing capital markets.