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Annual report narrative disclosures, information asymmetry and future firm performance: evidence from Vietnam

Ly Thi Hai Tran (School of Finance, University of Economics Ho Chi Minh City, Ho Chi Minh City, Vietnam)
Thoa Thi Kim Tu (School of Finance, University of Economics Ho Chi Minh City, Ho Chi Minh City, Vietnam)
Tran Thi Hong Nguyen (Research Department, Ho Chi Minh Stock Exchange, Ho Chi Minh City, Vietnam)
Hoa Thi Lien Nguyen (School of Finance, University of Economics Ho Chi Minh City, Ho Chi Minh City, Vietnam)
Xuan Vinh Vo (Institute of Business Research, University of Economics Ho Chi Minh City, Ho Chi Minh City, Vietnam)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 26 May 2021

401

Abstract

Purpose

This paper examines the role of the annual report’s linguistic tone in predicting future firm performance in an emerging market, Vietnam.

Design/methodology/approach

Both manual coding approach and the naïve Bayesian algorithm are employed to determine the annual report tone, which is then used to investigate its impact on future firm performance.

Findings

The study finds that tone can predict firm performance one year ahead. The predictability of tone is strengthened for firms that have a high degree of information asymmetry. Besides, the government’s regulatory reforms on corporate disclosures enhance the predictive ability of tone.

Research limitations/implications

The study suggests the naïve Bayesian algorithm as a cost-efficient alternative for human coding in textual analysis. Also, information asymmetry and regulation changes should be modeled in future research on narrative disclosures.

Practical implications

The study sends messages to both investors and policymakers in emerging markets. Investors should pay more attention to the tone of annual reports for improving the accuracy of future firm performance prediction. Policymakers should regularly revise and update regulations on qualitative disclosure to reduce information asymmetry.

Originality/value

This study enhances understanding of the annual report’s role in a non-Western country that has been under-investigated. The research also provides original evidence of the link between annual report tone and future firm performance under different information asymmetry degrees. Furthermore, this study justifies the effectiveness of the governments’ regulatory reforms on corporate disclosure in developing countries. Finally, by applying both the human coding and machine learning approach, this research contributes to the literature on textual analysis methodology.

Keywords

Acknowledgements

The authors would like to thank the senior students and master’s students in finance at University of Economics Ho Chi Minh City for their manual coding. The authors want to thank Assoc. Prof. Tuan Ho for his valuable comments on the coding template and the guidebook. The authors would also like to thank Dr. Haslindar Ibrahim and participants in Asia Conference on Business and Economic Studies for their helpful comments.

Funding: This research is funded by Vietnam National Foundation for Science and Technology Development (NAFOSTED) [under grant number 502.02-2016.06].

Citation

Tran, L.T.H., Tu, T.T.K., Nguyen, T.T.H., Nguyen, H.T.L. and Vo, X.V. (2021), "Annual report narrative disclosures, information asymmetry and future firm performance: evidence from Vietnam", International Journal of Emerging Markets, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJOEM-08-2020-0925

Publisher

:

Emerald Publishing Limited

Copyright © 2021, Emerald Publishing Limited

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