Faculty Publications

Do Changes In Md&A Section Tone Predict Investment Behavior?

John Berns, University of Mississippi
Patty Bick, University of Nebraska at Omaha
Ryan Flugum, University of Northern Iowa
Reza Houston, Ball State University


We find that changes in managerial tone predict firm corporate investment activities. Tone changes within the Management Discussion and Analysis section of the 10-K are positively related to subsequent capital investments and M&A activity. We find the predictive content of tone changes to be present at the firm and industry-levels, and when accounting for alternative sources of incremental information associated with firm investment activities. Our findings broaden the scope of information encapsulated by changes in financial statement tone.