The Informativeness of Disclosure Tone

Qualitative disclosure accompanying an earnings release is incrementally informative to earnings news (i.e., it is an information substitute for earnings) and it reflects the information content of earnings news (i.e., it is an information complement to earnings). When management provides quantitative guidance, the role of qualitative disclosure as an information substitute for earnings is diminished, yet the role of qualitative disclosure as a complement to quantitative disclosure is enhanced. Qualitative disclosure is more informative as an information substitute for and/or complement to quantitative disclosure when management is more likely to be a credible source of information: when management faces greater litigation risk, when management is less distressed, and when management has had a longer tenure