Can Analysts Identify Tone Management? : Evidence from China

We examine whether the analysts can identify the managers’ tone management behavior conveyed through the management discussion and analysis section of corporate annual reports. We find that analysts can effectively identify the managers’ upward tone management behavior and lower their earnings estimates. However, the downward tone management will decrease the accuracy of the forecasts because they can not identify the managers’ motivation to do downward tone management, so the market is mixed with analysts who overreact or can not identify. Overall, we should pay tribute to the analysts for identifying upward tone management behaviors, but they should be more cautious to prevent managers from using the downward managerial tone to confuse performance