Tone Management and Timely Submission of Audit Reports: The Moderating Role of Corporate Governance

Annual textual reports of companies have consistently been one of the most crucial sources for decision-making in the capital market. The qualitative characteristics of these disclosures, including tone and comprehensibility, are critical factors that enhance the usefulness of such information for decision-makers and protect shareholders' rights a point repeatedly emphasized by capital market regulators. Therefore, the objective of this study is to examine the relationship between tone management and the timely submission of audited financial statements, as well as the moderating role of corporate governance in this relationship.  To test the hypotheses, the study uses one of the most important textual disclosures of companies (the Board of Directors' activity report) and a sample comprising 896 observations from 112 companies listed on the Tehran Stock Exchange, covering the research period from 2014 to 2021.  The results indicate a significant and positive relationship between tone management and the timely submission of audit reports. The independence of the board of directors and CEO duality (respectively) strengthen and weaken this relationship. Further analyses reveal that auditor fees subsequently increase, and the findings remain robust even when considering the control variable of auditor change and the median lag in audit reporting. Based on the study's findings, company managers can reduce audit costs by avoiding tone management in textual disclosures. Auditors, in turn, can adjust their fees in proportion to the risk associated with tone management in other company disclosures.Contribution: This paper is grounded in the perspective of tone management and analyzes the impact of the quality of textual information on audit work and the moderating role of corporate governance. Additionally, it enhances our understanding of the consequences of tone management in timely reporting and the sensitivity of auditors' efforts to the tone of qualitative disclosures.