Journal of Accounting Knowledge

Journal of Accounting Knowledge

Investigating the Role of Conservatism in the Relationship between Liquidity Policies and Tone Management

Document Type : Research Paper

Authors
Roghayeh Mahmoudi Yekebaghi
Milad Darvishi
Mohammad Hossien Vadiei
Department of Accounting, Faculty of Administrative and Economic Sciences, Ferdowsi University of Mashhad, Mashhad, Iran.
10.22103/jak.2024.23897.4087
Abstract
Objective: The present study aims to examine the relationship between two important features of annual textual reports (tone and tone management) and the company's cash holding level, as well as the moderating role of conservatism in this relationship.
 
Method: This study includes a sample of 1080 observations from 120 companies listed on the Tehran Stock Exchange, covering the period from 2013 to 2021. The research hypotheses were tested using multiple regression analysis.
 
Results: The results showed a significant positive relationship between tone and the level of cash holdings, while there is a significant negative relationship between tone management and the level of cash holdings. Additionally, conservatism can moderate the relationship between the tone and tone management of the board of directors' activity report and the company's cash holding level. Further analysis revealed that historical tone management also has an inverse effect on the company's cash holding level.
 
Conclusion: Currently, users of financial and investment market information rely not only on quantitative data but also on textual disclosures as a critical source of supplementary information. Therefore, the emphasis on positively and negatively charged words, manipulation of representations, and interpretations in qualitative disclosures is of great importance. Moreover, conservatism can strengthen the relationship between the tone of textual disclosures in the board of directors' activity report and the level of cash holdings. On the other hand, conservatism can weaken the relationship between tone management and the level of cash holdings. This contributes to a deeper understanding of the literature on market efficiency.
Keywords
Tone Management
Abnormal Tone
Cash Holding Level
Conservatism
Subjects
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  • Receive Date 16 August 2024
  • Revise Date 17 October 2024
  • Accept Date 17 November 2024