Does positive tone in earnings communication conferences signal truth or deception? Evidence from corporate violations

Abstract

Purpose Our study aims to examine the impact of management's positive tone in earnings communication conferences on corporate violations, clarify the mechanisms underlying this effect and identify key boundary conditions that influence it. By doing so, it seeks to shed light on the real effects of positive tone in earnings communication conferences and deepen understanding of tone management's role in corporate compliance behavior. Design/methodology/approach We use a sample of China's A-share listed companies from 2005 to 2022 to investigate the relationship between positive tone in earnings communication conferences and corporate violations using ordinary least squares regression. The reliability of the conclusions is verified through multiple robustness tests such as propensity score matching, Poisson regression and variable substitution. To further explore the underlying mechanisms, we conducted mediation effect tests and heterogeneity tests. Findings Empirical results show that both net positive tone and abnormal positive tone significantly reduce corporate violations. Mechanism analysis reveals that this effect operates through improved disclosure quality and increased analyst coverage. Positive tone narrows information asymmetry and attracts greater external monitoring, thereby enhancing compliance. Heterogeneity tests indicate that the effect of positive tone is stronger when the degree of information asymmetry is lower or when Q&A sessions in earnings communication conferences are longer. Additionally, when a company has not implemented equity incentives or purchased directors' and officers' insurance, the inhibitory effect of positive tone on violations is more pronounced. Research limitations/implications Our study does not refine the content dimensions of tone in earnings communication conferences, making it difficult to identify the heterogeneous effects of tone across different themes on corporate violations. Additionally, it focuses solely on China's A-share market, without validating the generalizability of the conclusions through cross-market comparisons. Practical implications Our study helps investors assess disclosure quality and compliance risks via the tone in earnings communication conferences. It also aids regulators in creating better policies and supervision to improve market transparency and reduce corporate violations. Originality/value Our study advances understanding of tone management in earnings communication conferences by clarifying the dual role of positive tone (signal vs risk concealment) and its link to corporate violations, addressing gaps in prior studies focused on market-level outcomes and providing decision-making insights for listed companies to standardize information disclosure and for regulators to enhance market supervision.