The impact of tones of executive communication on firm risk-taking: Evidence from performance volatility and acquisition spending

Although current research has demonstrated that executive verbal communication could shape shareholders’ expectancy and responses, the hazards of executive communication and firms’ follow-up responses are largely neglected. Based on expectancy violation theory, we explore how different levels of managerial tone trigger a firm’s risk-taking to avoid violating shareholder expectancy. Using a computer-aided approach to identify managerial tones, our empirical study based on Chinese listed firms indicates that managers tend to take more risks (illustrated by higher performance volatility and acquisition spending) after delivering high-level (optimistic) or low-level (pessimistic) linguistic tones at an earnings communication conference. The results are robust by employing several endogeneity checks. We also identify a mediating role of shareholder reactions and the moderating role of firm prominence. These findings contribute to the executive communication literature by suggesting firms adopting risky strategies in response to shareholder reactions led by managerial tone.