The Impact of Annual Report Tone on Corporate Financing: A Case Study of Tesla, Inc.

Abstract

Corporate annual reports serve not only as key carriers of financial data but also as critical tools for management to engage in impression management through linguistic strategies. This study aims to deeply explore the impact of annual report tone, i.e., the emotional sentiment in the Management Discussion and Analysis section, on corporate financing costs. Taking Tesla, Inc., a representative multinational company, as the research subject, the study quantifies the positivity of tone in Tesla’s annual reports from 2019 to 2024 using the Loughran-McDonald financial sentiment word list. For the first time, it combines this with contemporaneous changes in the company’s bond credit spreads and bank loan interest rates to comparatively analyze the pathways through which tone differences affect financing costs. The results show that when management adopts excessively optimistic tone without sufficient performance support, it exacerbates information asymmetry, prompting creditors to demand higher risk premiums and thereby increasing financing costs. In contrast, a prudent and neutral tone helps build market trust and reduce financing costs. This study provides reference for companies in selecting linguistic strategies during information disclosure and offers investors a new perspective for interpreting textual information in annual reports.