Share pledge and qualitative information disclosures: Evidence from the tone of management discussion and analysis

Qualitative information provides additional information beyond quantitative information and may be strategically manipulated to bias investors’ perceptions. This can cause information asymmetry and requires a thorough investigation of firms’ information disclosure decisions. This study examines how controlling shareholders participating in share pledging affect the tone of management discussion and analyses (MD&A) using data from China's A-share listed companies from 2007 to 2017. It finds that share-pledging firms tend to disclose more positively in MD&A. This positive effect is more pronounced in firms with a higher risk of losing control. Further analyses show that the positive tone of MD&A in pledging firms helps increase the short-run stock price but worsens future performance. It implies that positively toned disclosures in the MD&A of share-pledging firms may be used to mislead investor perception. Overall, the findings in this study not only help expand the existing literature on qualitative information disclosure and share pledging, but also encourage more robust regulations on the qualitative information disclosure.