The exponential increase in technological capabilities has enabled financial researchers to incorporate massive textual data for economic analysis. The study expanded this avenue by aiming to identify the underlying dynamics of reporting by Chinese firms. The model linked behavioural and rationalist variables with organizational performance through the tone of the financial statements. The study utilized panel data from 13 years of the Chinese Research Data Services (CNRDS) platform. The final dataset comprised data from 5184 different firms. The generalized method of moments (GMM) method was applied to test for inferential propositions using EViews. The findings indicated a significant influence of agency costs, CEO overconfidence, and statement tone on organizational performance. An increase in agency costs and CEO overconfidence was negatively associated with organizational performance, whereas an increase in positive tone was positively associated with improved organizational performance. Furthermore, the tone of financial statements was found to mediate this relationship. The study is a pioneer in expanding the paradigm of textual analysis by incorporating the tone of financial statements. Practically, the study provides significant insights to all the stakeholders, considering traditional and behavioral factors.
Mirza et al. (2025) studied this question.