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