ABSTRACT Understanding the behavioral dynamics of corporate communication is crucial in assessing how financial instruments influence managerial signaling strategies. This study examines the relationship between unconverted convertible bond ratio and tone management in earnings communication conferences. The sample includes A‐share listed companies from the Shanghai and Shenzhen stock exchanges between 2006 and 2023. Empirical findings reveal a significant positive correlation between unconverted convertible bond ratio and abnormal tone. Furthermore, a nonlinear U‐shaped relationship is observed between unconverted convertible bond ratio and positive tone. The effects of the two types of tone management are not consistent. Surprisingly, abnormal tone does not appear to directly affect investor conversion behavior in the following year; instead, it contributes to a higher unconverted convertible bond ratio. In contrast, positive tone encourages bond conversion. Additionally, a greater unconverted bond ratio in the current year enhances the effect of positive tone on conversion behavior in the subsequent year. Further analysis reveals that when financing constraints are low and the proportion of current liabilities is high, a higher unconverted convertible bond ratio is associated with higher levels of abnormal tone. Additionally, the impact of unconverted convertible bond ratio on abnormal tone is more pronounced when convertible bonds are issued to existing shareholders. In terms of external regulation, it is evident that when external financial regulation is less stringent and negative media coverage is limited, a higher unconverted convertible bond ratio is linked to higher levels of abnormal tone. Lastly, while adopting a high‐level abnormal tone in information disclosure strategies to address a higher unconverted convertible bond ratio may enhance short‐term market performance, it is associated with negative long‐term market performance. This study contributes to the literature by providing new insights into the role of financial instruments, such as convertible bonds, in shaping corporate signaling strategies, particularly through tone management during earnings communication conferences. The findings offer valuable implications for investors and policymakers, suggesting that conversion rates may serve as signals for corporate financial health and future performance. Moreover, the research enriches the understanding of how financing decisions, market conditions, and corporate governance structures interact to influence investor perceptions and corporate strategies.
Wen et al. (Mon,) studied this question.