Paper Title
Incremental Information Vs Impression Management: Using Voluntary Corporate Disclosure Tone to Predict Financial Distress and Related Corporate Policies

Abstract
The assessment of corporate financial distress risk often relies on hard information (i.e. accounting numbers), while soft information (i.e. accounting narratives) is hardly used for this purpose. Accordingly, this paper examines whether voluntary disclosure in the UK unstructured annual reports can reduce information asymmetry about firms’ future fundamentals and major events such as bankruptcy. We find that firms which release more net positive tone in the chairman’s statement, performance section, business review section and aggregate qualitative sections in the annual report are less inclined to face future financial distress. Those firms also experience better and less volatile future performance. They are less likely to engage in dividends cut, employees downsizing, or trade debt-overhanging policies that are frequently triggered by financially distressed firms. We further find that the predictive power of this net positive tone improved with factors that enhance corporate information environment including, board monitoring, stock market regulations and accounting standards. Overall, these findings confirm that voluntary soft information embedded in the annual report does not constitute impression management however; it provides useful incremental information to corporate audiences. These results have practical implications, since they shed light on the value relevance of the information content of major and most costly business communication the mandated annual report. “JPMorgan creates an alert system that will ping its portfolio managers whenever transcripts (of corporate earnings calls) are particularly positive or negative.” Ravit Mandell, JPMorgan’s Chief Data Scientist