Grace Lee examines why managers’ disclosure tone varies across time and what investors learn

Assistant Professor Hye Seung (Grace) Lee’s co-authored paper, “Express yourself: Why Managers’ Disclosure Tone Varies Across Time and What Investors Learn from It,” was published in 2019 in Contemporary Accounting Research. The authors argue that volatility in a manager’s disclosure tone across time should be a function of the firm’s innate operating risk and the extent to which the manager’s disclosure transparently reflects that risk. Consistently, they find that both operating risk and disclosure transparency are important determinants of disclosure tone volatility.

They also find a positive association between disclosure tone volatility and market‐based assessments of firm risk after controlling for a comprehensive set of proxies for operating risk and transparency. Their results suggest that although disclosure tone volatility is a function of both a firm’s operating risk and a manager’s disclosure transparency, investors appear to respond as if disclosure tone volatility only provides incremental information about a firm’s operating risk.