The Role of Annual Reports Narrative Disclosure Tone in Predicting Long Term Financial Performance: Evidence from Egypt

Purpose – This study aims to examine the narrative disclosure tone prediction power over long term performance in the Egyptian context. 
Design/methodology/approach – The study conducts a manual content analysis to measure the tone of Egyptian annual reports narratives. Return on assets for the subsequent fiscal period used as a proxy to future performance. The sample consists of 79 firms listed in the Egyptian Exchange (EGX) over the period from 2010 to 2018. Descriptive analysis, independent sample t-test, correlation matrix and ordinary least squares regression were used to analyze the data.
Findings – The results show a significantly positive correlation between disclose tone and financial performance not only after one year but also after two years.
Originality/value – This study provides novel evidence about the effect of narrative disclosure tone and its prediction power on long term performance in one of the biggest developing economies specifically Egypt. Moreover, the study has practical implications upon accounting disclosure practice. especially, for financial analysts and external users about the importance of tone in anticipating the future performance.