Discretionary tone, annual earnings and market returns: Evidence from UK Interim Management Statements

Abstract

This study contributes to the tone management literature by examining the discretionary tone of Interim Management Statements (IMSs) in the context of UK quarterly reporting. Specifically, it provides evidence that the discretionary tone of third-quarter IMSs, but not first-quarter IMSs, is positively aligned with annual earnings. Further analysis reveals a negative association between third-quarter discretionary negative tone and annual earnings. The discretionary tone is also more positively aligned with contemporaneous abnormal market returns in the third quarter than in the first quarter. Additional analysis provides new insights on the efficacy of the IMS discretionary positive tone during the 2008 financial crisis, and on the policy debate of the IMS as an alternative to the full quarterly report.