When Words Backfire: Tone Management and Crash Risk in Banking

This paper investigates the role of tone management in shaping future stock price crash risk within the banking sector. Building on the idea that managers strategically exploit discretion over disclosure tone as a tool of impression management, we provide evidence that an excessively optimistic use of language in financial communication is associated with sharp stock price declines. The effect is particularly pronounced in contexts where managerial incentives and opportunities to mislead are stronger, underscoring the opportunistic nature of tone manipulation. Collectively, our results emphasize how managers can temporarily conceal adverse signals, increasing informational opacity and paving the way for severe market corrections, with critical implications for the stability of the financial system.