ABSTRACT This study examines how the textual tone of annual reports shapes market attention and investigates the moderating effect of firm profitability, firm size, and Tobin's Q. Based on a comprehensive sample of Chinese A‐share listed firms from 2007 to 2022, we find that a positive tone in annual reports significantly increases market attention. Moreover, firm profit strengthens this relationship, whereas firm size and Tobin's Q weaken it. These results suggest that the credibility and effectiveness of a positive tone are enhanced when corroborated by strong financial performance. Our findings remain robust to alternative variable measurements, endogeneity tests, and multiple sample specifications. This research contributes to signaling theory and impression management literature by identifying a critical boundary condition for the efficacy of tonal strategies, with important implications for investors, regulators, and corporate disclosure practices.
Yanyan Li (Fri,) studied this question.