Why do Managers Manage the Tone? Evidence from China

We investigate whether managers choose the tone of non-financial information disclosure strategically based on performance, and what their motivations are. We use 14,400 firm-year MD&As of companies listed on the Shanghai Stock Exchange and Shenzhen Stock Exchange from 2008 to 2019. The results show that there is tone asymmetry in the Chinese capital market and Chinese managers prefer to highlight good news and downplay bad news. We also find that such tone asymmetry is more pronounced when firm performance successively increases or decreases. Our evidence suggests that neglecting bad news is due to managers’ opportunistic decisions for reputation management. Also, different from prior studies, our findings suggest that in the Chinese capital market the asymmetric tone management is not related to managerial overconfidence.