Trade-Offs for Good Performing CSR Firms : Tone Management in MD&As or CSR?

Previous research analyzes the relationship between corporate social responsibility (CSR) performance and the tone of a single report. Noting that reporting attributes and financial performance may influence managers’ disclosure decisions, we investigate how CSR performance at different financial performance affects managers’ tone management behavior across reports. Using data from Chinese listed firms from 2010 to 2019, we find that CSR performance is positively associated with management’s discussion and analysis (MD&A) managerial tone and not significantly associated with CSR managerial tone, indicating that managers prefer to use a more optimistic tone in MD&A over CSR. We also find that CSR performance is negatively related to MD&A managerial tone and positively related to CSR managerial tone when the firm performs poorly, suggesting that firms switch from MD&A-based to CSR-based tone management when financial performance decrease. These results suggest an alternative relationship between the managerial tone in MD&A and CSR. Further, this alternative relationship is more pronounced in SOEs. Our findings support the argument that good performing CSR firms camouflage their opportunistic behavior by strategically switching the managerial tone