Narrative disclosure tone: A review and areas for future research

Numerous studies have examined Narrative Disclosure Tone (NDT) in different channels of financial reporting over the past decade. Our review of 64 studies aims to analyze tone measurements and areas of debate in NDT literature and to suggest avenues for future research. First, we discuss previous studies that compared tone measures based on alternative wordlists and found that tone measures using domain-specific dictionaries are more powerful than those based on general dictionaries. Future research should benefit from the advanced methods considering natural language processing mechanisms and the meanings rather than word frequency for more accuracy. Second, from the theoretical perspective, studies that linked psychological theories to the tone context are limited. Therefore, we call for more evidence from the upper echelons theory that considers the interdependencies between executives. Finally, we critically review different directions of NDT studies and highlight areas for future research. Mainly, we suggest future research to investigate the determinants of NDT in the areas of top managers-specific characteristics, tax avoidance, audit quality, social capital, and regulatory bodies. We call for more research about tone consistency among different channels of disclosures in companies’ communications with stakeholders.