Annual report narrative disclosures, information asymmetry and future firm performance: evidence from Vietnam

Abstract

PurposeThis paper examines the role of the annual report’s linguistic tone in predicting future firm performance in an emerging market, Vietnam.Design/methodology/approachBoth manual coding approach and the naïve Bayesian algorithm are employed to determine the annual report tone, which is then used to investigate its impact on future firm performance.FindingsThe study finds that tone can predict firm performance one year ahead. The predictability of tone is strengthened for firms that have a high degree of information asymmetry. Besides, the government’s regulatory reforms on corporate disclosures enhance the predictive ability of tone.Research limitations/implicationsThe study suggests the naïve Bayesian algorithm as a cost-efficient alternative for human coding in textual analysis. Also, information asymmetry and regulation changes should be modeled in future research on narrative disclosures.Practical implicationsThe study sends messages to both investors and policymakers in emerging markets. Investors should pay more attention to the tone of annual reports for improving the accuracy of future firm performance prediction. Policymakers should regularly revise and update regulations on qualitative disclosure to reduce information asymmetry.Originality/valueThis study enhances understanding of the annual report’s role in a non-Western country that has been under-investigated. The research also provides original evidence of the link between annual report tone and future firm performance under different information asymmetry degrees. Furthermore, this study justifies the effectiveness of the governments’ regulatory reforms on corporate disclosure in developing countries. Finally, by applying both the human coding and machine learning approach, this research contributes to the literature on textual analysis methodology.

Does the income of the chief executive officer affect the quality of corporate financial statements? An evidence from industrial firms in Vietnam

“…Table 3 The regression results Among firm-specific factors, the firm's size significantly positively affected the quality of financial statements at any significance level. This result is consistent with the aforementioned arguments and expectation that larger firms attract more public attention to their business activities and social responsibilities, encouraging them to perform more honest and intensive information (Tran et al, 2021;Nguyen et al, 2021b;Nguyen et al, 2020b). Contrastingly, the coefficient of dummy variable BIG4 was negative, however insignificant at any significance level.…”

Content Analysis of Voluntary Disclosures on Cybersecurity in Malaysia

“…Therefore, they help investors to predict company performance for the next accounting period. Tran et al (2021) provide further evidence that supports the effects of voluntary disclosures on the ability of financial statements to summarise firms' values.…”

“…However, looking from informational perspectives, voluntary disclosure can damage a company's competitive position (Bamber et al, 2010). Tran et al (2021) reveal that the narrative disclosures in the annual report reflect remarkable signals of company prospects in emerging markets, it will not be in favour the management. Lakshan et al (2021) studied the future-oriented information that is required by the Integrated Reporting (IR) Framework and indicate that they may lead higher inherent risks related to uncertainties and predictions.…”

Pessimistic Tone in Earnings Announcement and CSR Disclosure: Exploring the Interacting Role of CEO Busyness

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