Effect of positive tone in MD&A disclosure on capital structure adjustment speed: evidence from China

Abstract

AbstractWe explore the influence of text tone on capital structure, especially the impact of positive tone in management discussion and analysis (MD&A) disclosures on the capital structure adjustment speed of Chinese listed firms in Shanghai and Shenzhen Stock Exchange. We find that positive tone in MD&A disclosures significantly promotes the dynamic adjustment of capital structure. Specifically, we identify two types of positive tone: exaggerated and true. We find that only true positive tone significantly promotes the adjustment speed of capital structure. This paper supplements the relevant literature on the dynamic adjustment of capital structure from the perspective of non‐financial narrative information, and provides evidence for the effect of strategic tone management in textual analysis.