Managerial Tone, Information Complexity and Abnormal Returns to Company Investment Announcements

This paper examines the stock market’s valuation of the tone and information complexity of new investment decisions. Abnormal returns are estimated for a sample of 517 investment announcements for listed UK firms for the period 2013 to 2021. We test whether the tone conveyed in investment announcements is positively viewed by market participants and examine the relationship between information complexity and abnormal returns to investment announcements. The relationship between positive tone and abnormal returns to investment announcements is positive and significant. Further, the data sample is categorized and tested for 90 announcements with a sustainability agenda (sustainable investment) and 427 announcements without a sustainability agenda (non-sustainable investment) and shows that the stock market reacts positively to the positive tone of sustainable investments. Information complexity is negatively associated with abnormal returns for both sets of investments suggesting that higher complexity reduces the stock market’s valuation of investment announcements. The findings suggest that the positive market valuation of managerial tone may lead to price discovery which investors can use to evaluate the prospects of investment decisions.