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 with respect to firm disclosures, leading us to expect them to influence financial reporting narratives. We investigate whether the tone of firms’ narrative annual report disclosures is associated with the human and social capital of its board of directors. Analyzing a large sample of SEC registrants from 2003 to 2014, we find that directors’ age is negatively associated with negative, positive, uncertain, and total disclosure tone. These results are consistent with older directors reporting cautiously. Meanwhile, board gender balance is associated with less rich, yet more optimistic tone. Education and financial expertise are positively associated with all four types of tone, indicative of richer narrative disclosures. Board turnover is positively associated with negative and total tone yet negatively associated with positive and uncertain tone, suggesting that new directors bring fresh disclosure styles. Our study helps decode the “black box” of disclosure tone, which Loughran & McDonald (2011) show has important economic implications