Board characteristics and disclosure tone

We examine the role of corporate boards of directors in shaping disclosure tone. Boards of directors play an important governance role (Beasley, 1996), leading us to expect boards of directors to influence financial reporting narratives. Specifically, we investigate whether the tone of firms’ narrative disclosures provided in annual 10-K reports is associated with the age, gender uniformity, human capital, and turnover of its board of directors. Analyzing a large sample of SEC registrants from 2003 to 2014, the results indicate that directors’ age is negatively associated with negative, positive and uncertain disclosure tone, but positively associated with litigious tone. These results are consistent with older directors being risk averse, contributing to cautious reporting. Meanwhile, gender uniformity is positively related to negative and uncertain tone and negatively related to positive tone while human capital is positively associated with all four types of tone: negative, positive, uncertain, and litigious, indicative of richer narrative disclosures. Board turnover is positively associated with negative and litigious tone yet negatively associated with positive and uncertain tone, suggesting that new directors bring their own disclosure styles that fade over time. Overall, our study helps decode the “black box” of disclosure tone which Loughran and McDonald (2011) show has important economic implications.