Review of Accounting Studies

, Volume 15, Issue 4, pp 915–953 | Cite as

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

  • Ronen Feldman
  • Suresh Govindaraj
  • Joshua LivnatEmail author
  • Benjamin Segal


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 



The authors gratefully acknowledge the Point-In-Time database provided by Charter Oak Investment Systems Inc. and the S&P Filing Dates database provided by Compustat. The authors gratefully acknowledge comments made by seminar participants at Columbia University, Rutgers University, and various colleagues at NYU.


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Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  • Ronen Feldman
    • 1
  • Suresh Govindaraj
    • 2
  • Joshua Livnat
    • 3
    Email author
  • Benjamin Segal
    • 4
  1. 1.Data & Text Mining Laboratory, Jerusalem School of Business AdministrationHebrew UniversityJerusalemIsrael
  2. 2.Rutgers Business School, Newark and New Brunswick, Department of Accounting, Business Ethics, and Information SystemsNewarkUSA
  3. 3.Stern School of Business AdministrationNew York UniversityNew York CityUSA
  4. 4.Accounting and Control GroupINSEAD, Boulevard de ConstanceFontainebleauFrance

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