Review of Accounting Studies

, Volume 15, Issue 4, pp 915-953

First online:

Management’s tone change, post earnings announcement drift and accruals

  • Ronen FeldmanAffiliated withData & Text Mining Laboratory, Jerusalem School of Business Administration, Hebrew University
  • , Suresh GovindarajAffiliated withRutgers Business School, Newark and New Brunswick, Department of Accounting, Business Ethics, and Information Systems
  • , Joshua LivnatAffiliated withStern School of Business Administration, New York University Email author 
  • , Benjamin SegalAffiliated withAccounting and Control Group, INSEAD, Boulevard de Constance

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This study explores whether the management discussion and analysis (MD&A) section of Forms 10-Q and 10-K has incremental information content beyond financial measures such as earnings surprises and accruals. It uses a classification scheme of words into positive and negative categories to measure the tone change in the MD&A section relative to prior periodic SEC filings. Our results indicate that short window market reactions around the SEC filing are significantly associated with the tone change of the MD&A section, even after controlling for accruals and earnings surprises. We show that management’s tone change adds significantly to portfolio drift returns in the window of 2 days after the SEC filing date through 1 day after the subsequent quarter’s preliminary earnings announcement, beyond financial information conveyed by accruals and earnings surprises. The drift returns are affected by the ability of the tone change signals to help predict the subsequent quarter’s earnings surprise but cannot be completely attributed to this ability. We also find that the incremental information of management’s tone change depends on the strength of the firm’s information environment.


Textual analysis Earnings drift Accruals Earnings surprises Management tone change MD&A

JEL Classifications

G12 G14 M41