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

Ronen Feldman, Suresh Govindaraj, Joshua Livnat*, Benjamin Segal

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

380 Scopus citations


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.

Original languageAmerican English
Pages (from-to)915-953
Number of pages39
JournalReview of Accounting Studies
Issue number4
StatePublished - Dec 2010


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


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