Tone of language, financial disclosure, and earnings management: a textual analysis of form 20-F

Li, Shuangyan; Wang, Guangrui; Luo, Yongli

doi:10.1186/s40854-022-00346-5

Financial Innovation

Table 3 OLS Regression on earnings management

From: Tone of language, financial disclosure, and earnings management: a textual analysis of form 20-F

Variables	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)
Dependent variable: EM
Positive		6.482***
		(3.84)
Negative			1.113
			(1.48)
Uncertainty				3.793***
				(4.00)
Litigious					0.406
					(0.87)
Strongml						6.372**
						(2.25)
Moderml							8.741**
							(2.18)
Weakml								5.357***
								(3.60)
Irrverb									3.185
									(1.63)
LP	− 0.007	− 0.005	− 0.006	− 0.004	− 0.006	− 0.006	− 0.005	− 0.004	− 0.005
	(− 1.39)	(− 1.03)	(− 1.22)	(− 0.90)	(− 1.35)	(− 1.28)	(− 1.10)	(− 0.80)	(− 1.10)
FN	0.013**	0.014**	0.014**	0.013**	0.014**	0.011*	0.012*	0.015**	0.012*
	(2.02)	(2.13)	(2.10)	(2.07)	(2.05)	(1.66)	(1.82)	(2.36)	(1.83)
AOT	0.013	0.014	0.013	0.013	0.014	0.012	0.012	0.014	0.013
	(1.06)	(1.17)	(1.06)	(1.09)	(1.10)	(1.01)	(0.97)	(1.17)	(1.04)
BIG4	− 0.003	− 0.001	− 0.003	− 0.001	− 0.003	− 0.003	− 0.003	− 0.001	− 0.003
	(− 0.44)	(− 0.10)	(− 0.47)	(− 0.11)	(− 0.50)	(− 0.41)	(− 0.37)	(− 0.20)	(− 0.51)
LEV	0.017	0.016	0.018*	0.020*	0.018	0.016	0.018*	0.019*	0.018
	(1.57)	(1.46)	(1.66)	(1.86)	(1.61)	(1.49)	(1.67)	(1.75)	(1.60)
LNSIZE	− 0.018***	− 0.016***	− 0.018***	− 0.017***	− 0.018***	− 0.017***	− 0.016***	− 0.016***	− 0.018***
	(− 3.69)	(− 3.23)	(− 3.72)	(− 3.46)	(− 3.71)	(− 3.43)	(− 3.30)	(− 3.40)	(− 3.66)
CH	− 0.009	− 0.009	− 0.012	− 0.011	− 0.011	− 0.011	− 0.009	− 0.011	− 0.011
	(− 0.78)	(− 0.78)	(− 0.99)	(− 0.93)	(− 0.90)	(− 0.94)	(− 0.78)	(− 0.91)	(− 0.92)
REV	0.015***	0.016***	0.015***	0.017***	0.015***	0.016***	0.016***	0.016***	0.015***
	(3.61)	(3.70)	(3.56)	(3.93)	(3.45)	(3.76)	(3.73)	(3.83)	(3.49)
CF	− 0.119***	− 0.110***	− 0.119***	− 0.110***	− 0.119***	− 0.117***	− 0.117***	− 0.111***	− 0.118***
	(− 4.44)	(− 4.16)	(− 4.42)	(− 4.14)	(− 4.44)	(− 4.36)	(− 4.38)	(− 4.19)	(− 4.41)
ROA	0.122***	0.107***	0.125***	0.109***	0.123***	0.116***	0.116***	0.109***	0.122***
	(4.47)	(3.95)	(4.58)	(4.04)	(4.52)	(4.28)	(4.25)	(4.01)	(4.48)
Firm	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Industry	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Year	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
N	449	449	449	449	449	449	449	449	449
Adj R²	0.136	0.164	0.139	0.166	0.136	0.145	0.144	0.161	0.140
F-statistics	5.53	3.83	3.33	3.88	3.27	3.45	3.43	3.76	3.35

This table reports the OLS regression on earnings management (EM). The sample includes 75 U.S.-listed Chinese companies during 2002–2014.The total number of observations is 449. The sample is obtained from the S&P Capital IQ and supplemented from the Wind Database. LP is a dummy for listing place, FN is a dummy for state-owned enterprise, AOT is a dummy for auditor going concern, and BIG4is a dummy for Big 4 auditing firms. LEV is the ratio of total debt to total assets. LNSIZE is the logarithm of firm’s total assets. CH is the ratio of cash to total assets. REV is the change in sales. CF is the ratio of cash from operating to total assets. ROA is return on assets. Positive, negative, uncertain, litigious, strong modal, moderate modal, weak modal, and irregular verbs are the eight categories of wordlist defined from the 2014 Master Dictionary of McDonald, and Loughran and McDonald (2011) word list. All regressions include firm, industry and year fixed effects. The t-statistics are in parentheses
***, **, and* denote significance at the 1%, 5%, and 10% level respectively

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