The Disclosure Tone, Earnings Management, Earnings Quality: Evidence Found in Indonesia Listed Manufacturing Industry


This study examined the influence of earnings management (EM) and earnings quality (EQ) on the disclosure tone of an annual report. NVIVO’s coding AI measures the DT (Disclosure Tone) through automated text analysis. The sample used was 61 of Indonesia’s listed manufacturing companies from 2017 to 2021. The balanced panel data was used and executed by a weighted panel least square. The results prove that EM is essential for DT, while EQ is insignificant for DT. The higher EQ indicates the high asymmetric information from management to the stakeholders, which leads the company to disclose a more positive tone. However, the negative tone is also improving with a higher EQ. These results imply that when the company has higher EM, it tries to balance the tone of its annual report in order to gain the trust of stakeholders, this is beneficial for analysts, investors, and regulators when collecting information from annual reports. Future studies can extend this framework to other types of industries since each industry has specific characteristics in giving the tone in their reports. Besides, future studies can also focus on the tone of the sustainability report or integrated report in other countries.

Keywords: earnings management, earnings quality, disclosure tone, manufacturing industry

[1] Ministry of Industry. “Kemenperin” Indonesia’s Manufacturing Industry is Expanding. 10-Feb-2022. [Online]. Available: Semakin-Ekspansif. [Accessed: 10-Jun-2022].

[2] Hassan Y, Abousamak A, Hijazi R. Does corporate governance constrain earnings management in an unstable economic and political environment? Asian Econ Financ Rev. 2022;12(12):1074–93.

[3] Abou-El-Sood H, El-Sayed D. Abnormal Disclosure Tone, Earnings Management and Earnings Quality. Journal of Applied Accounting Research. 2022;23(2):402–33.

[4] Milgrom PR. Good news and bad news: representation theorems and applications. Bell J Econ. 1981;12(2):380–91.

[5] Shakespeare C. Reporting matters: the real effects of financial reporting on investing and financing decisions. Account Bus Res. 2020;50(5):425–42.

[6] Li F. Textual analysis of corporate disclosures: A survey of the literature. J Account Lit. 2010;29(1):143–65.

[7] Kang Y, Cai Z, Tan CW, Huang Q, Liu H. Natural language processing (NLP) in Management Research: A literature review. Journal of Management Analytics. 2020;7(2):139–72.

[8] Frankel R, Jennings J, Lee J. Disclosure sentiment: machine Learning vs. dictionary methods. Manage Sci. 2022;68(7):5514–32.

[9] Tucker BP, Parker LD. Business as usual? An Institutional View of the Relationship between Management Control Systems and Strategy. Financ Account Manag. 2015;31(2):113–49.

[10] Fang X, He K, Meng Y, Ye J. Supervision or collusion? CEO–CFO social ties and financial reporting quality. J Account Lit. 2022;44(2/3):133–53.

[11] Albitar K, Abdoush T, Hussainey K. Do corporate governance mechanisms and ESG disclosure drive CSR narrative tones? Int J Finance Econ. 2022.

[12] Menicucci E. Earnings Quality: Definitions, Measures, and Financial Reporting. Springer Nature; 2021.

[13] Durana P, Valaskova K, Siekelova A, Michalkova L. Appraisal of Earnings Management Across the Sectors. J Bus Econ Manag. 2022;23(2):399–425.