Optimistic Disclosure Tone and Conservative Debt Policy

Ataullah, Ali; Vivian, Andrew and Xu, Bin (2018). Optimistic Disclosure Tone and Conservative Debt Policy. Abacus, 54(4) pp. 445–484.

DOI: https://doi.org/10.1111/abac.12140

Abstract

We examine the relationship between managerial optimism and debt conservatism (i.e. the low-leverage puzzle). Our analysis demonstrates that optimistic tone, our time-varying optimism measure, significantly decreases leverage. This evidence supports the proposition that optimistic managers who consider external financing as unduly costly use debt conservatively. This reduced reliance on external financing can be explained by our further evidence that optimistic tone significantly increases cash holdings and decreases dividend payment. The negative tone-leverage relation is stronger in the presence of high insider purchase of own stocks which confirms that optimistic tone reflects managerial optimism. This study suggests that managerial optimism can help explain the low-leverage puzzle.

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About

• Item ORO ID
• 51695
• Item Type
• Journal Item
• ISSN
• 0001-3072
• Keywords
• managerial optimism; debt conservatism; cash; dividend; tone analysis; insider trading
• Academic Unit or School
• Faculty of Business and Law (FBL) > Business > Department for Accounting and Finance
  Faculty of Business and Law (FBL) > Business
  Faculty of Business and Law (FBL)
• Copyright Holders
• © 2018 Accounting Foundation, The University of Sydney
• Depositing User
• Ali Ataullah