Study of the Impact of Annual Report Text Tone on Corporate Financing Constraints

Abstract

Based on the incremental information theory, this paper examines the impact of annual report text tone on corporate financing constraints using a fixed-effects model with a sample of listed Chinese A-share enterprises in Shanghai and Shenzhen from 2008 to 2021. The findings show that positive annual report text tone can effectively alleviate firms' financing constraints, which remains robust after considering the self-selection problem of the model, omitted variables and the lagged effects of the independent variables. Further, the paper analyses the mediating and moderating effects of the relationship between the tone of annual report texts and corporate financing constraints. For the mechanism analysis, the paper examines the mechanism role of media attention. In terms of moderating effects, two macro-level variables, namely the level of regional economic development and the quality of the institutional environment; one meso-level variable, industry concentration; and three micro-level variables, namely the quality of internal control, equity structure and life cycle, are selected for analysis. The findings obtained from this paper have implications for the expansion of effective disclosure of annual reports by companies and for investors' proper understanding of the role of incremental textual information in annual reports for investment decisions.