Institutional ownership and the informativeness of disclosure tone

By Ankit Jain, Hariom Manchiraju, Shyam V Sunder
Journal of Business Finance and Accounting | February 2023

DOI

onlinelibrary.wiley.com/doi/epdf/10.1111/jbfa.12640

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Jain, Ankit., Manchiraju, Hariom., Sunder, Shyam V. Institutional ownership and the informativeness of disclosure tone Journal of Business Finance and Accounting onlinelibrary.wiley.com/doi/epdf/10.1111/jbfa.12640.

Journal of Business Finance and Accounting, 2023

Abstract

Disclosure tone is an important qualitative characteristic of managerial disclosures. There is mixed evidence on the role of tone in disclosure strategy. While some studies highlight the informativeness of disclosure tone, other studies provide evidence consistent with an information obfuscation role. We conjecture that the mixed evidence may be because prior studies have not explicitly modeled the role of oversight over managerial disclosure. Using an exogenous shock to institutional ownership, an important source of managerial oversight, we find that abnormal disclosure tone is informative of a firm's future earnings and cash flows when institutional ownership is high. This positive association between institutional ownership and informativeness of abnormal tone is stronger when there is an increase in quasi-indexer institutional ownership and the contemporaneous performance is negative. Collectively, the results highlight a more complex role for disclosure tone. Abnormal disclosure tone could be reflective of managerial sentiment and convey forward-looking information to investors in the presence of greater oversight over managerial actions.

Prof. Hariom Manchiraju is an Associate Professor of Accounting at the Indian School of Business (ISB). His research examines the role of accounting information in capital markets, the economic consequences of regulation, environmental, social, and governance (ESG) reporting, executive compensation, and corporate governance.

His work has been published in leading academic journals, including Journal of Accounting Research, Journal of Accounting and Economics, The Accounting Review, Contemporary Accounting Research, and Review of Accounting Studies. He currently serves on the editorial review board of Contemporary Accounting Research and is the founding editor of Accounting Theory and Practice, a research journal focused on India and published by Elsevier.

At ISB, he teaches Financial Accounting and Financial Statement Analysis in the PGP program and also teaches in the PhD program. His doctoral students have been placed at leading business schools, including the Indian Institute of Management Ahmedabad.

Prof. Manchiraju holds a PhD and MBA from the State University of New York–Buffalo, a Master of Financial Management (MFM) from Sri Sathya Sai University, India, and a Bachelor’s degree in Commerce from Osmania University, India.

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