Title: Say and Say It in A Smart Way: Mutual Fund Managers’ Commentaries and Fund Flows

Authors: Shufang Lai (Southern University of Science and Technology), Xiangang Xin (The Chinese University of Hong Kong), Chunqiu Zhang (Fudan University), Ziyi Zhang (Southern University of Science and Technology)

Abstract: In China, mutual fund managers have to file commentaries along with periodic financial statements, concerning the review of fund operations and the outlook of the market. In this paper, we decompose fund managers' commentaries into discussions of substantive information and general information, and we argue that the relative tone of substantive discussions to general discussions can affect future fund flows through two possible channels: information revealing and tone management. We find a robust positive relation between the relative tone and future fund flows, and such effect is stronger for funds with better past performance and funds managed by senior managers, but is weaker when investors are distracted. However, such relative tone cannot predict future fund performance, suggesting that the results are more consistent with tone management channel. Our paper provides evidence of fund managers' strategic disclosure strategy revealed in tone difference of qualitative disclosure.