Existing research on stock price manipulation driven by equity incentives has mainly focused on earnings management, without considering other potential manipulation methods. Therefore, we examine whether management engages in tone management during earnings communication conference following equity incentives.
Using Chinese A-share listed companies from 2006 to June 2023 as the sample, we explore the impact mechanism of equity incentives on the tone of earnings communication conference.
Equity incentives are found to increase abnormal tone in earnings communication conferences. The characteristics of equity incentives themselves affect tone management. For instance, equity incentives based on stock options, as well as those within the exercise feasibility year, have a more pronounced effect on facilitating tone management. The mechanisms through which equity incentives affect different tones vary: the increase in positive tone is associated with improved financial performance, while the increase in abnormal tone is linked to executives reducing their holdings to obtain cash. Further discussions reveal that the impact of equity incentives on abnormal tone is weaker when there is a higher degree of real or accrual-based earnings management, suggesting a possible substitution relationship between earnings management and abnormal tone. Additionally, when a company experiences low investment efficiency, high executive compensation and a lower proportion of negative news coverage in the external information environment, the impact of equity incentives on abnormal tone becomes more pronounced.
Our study primarily focuses on conducting exploratory research into the mechanism, purpose, timing and alternative selection of tone management in the year following the grant of equity incentives. We have not provided a detailed theoretical explanation regarding the transmission channels or mechanisms through which tone management affects investor sentiment and trading behavior.
We provide valuable insights for identifying the quality of information disclosure in earnings communication conference.
We clarify the mechanism of equity incentives on management’s tone, reveals the timing preferences of tone management during the earnings communication conference.
