Description:
Management narrative tone in annual reports, either positive or negative, can convey firm-specific information or mislead investors. However, the impacts of positive and negative narrative tones can be different and asymmetric. We provide novel evidence that negative tones facilitate the incorporation of firm-specific information into stock prices but positive tones attenuate information incorporation. The impact of negative tone is significantly greater than that of positive tone. Further analyses show that the asymmetric effect on stock price synchronicity is attributed to investors’ differential evaluation of good and bad news, and their weighting of the information. Overall, the results highlight the different informativeness of positive and negative narrative tone and the importance of considering their impacts separately