Purpose: The purpose of this study is to explore the relationship between environmental, social and governance (ESG) performance and tone management in the annual report. This is based on the notion that managers, driven by personal interests, may use their ESG accomplishments by using an abnormal positive tone to enhance their reputation or career prospects. Design/methodology/approach: Using panel data from Chinese listed companies from 2010 to 2022, this study first investigates the relationship between ESG performance and abnormal tone management. The study then uncovers this relationship is mediated through the mechanisms of equity-based incentive and analyst coverage. The conclusions of this paper hold even after a series of robustness tests, such as propensity score matching, Heckman two-stage method and two-stage least squares with instrumental variables. Findings: This study finds a positive correlation between ESG performance and the presence of abnormal positive tone in annual reports. Furthermore, the mechanistic analysis reveals that managers in companies with strong ESG performance are motivated to use an overly positive tone, largely due to their vested interests in equity-based compensation. Moreover, in an effort to alleviate the pressure stemming from heightened financial analyst coverage and enhance the impression conveyed through analysts' reports, managers with superior ESG performance also tend to inflate the tone within their annual reports. Practical implications: This study provides significant insights into the ongoing dialogue surrounding ESG-related equity incentives, which incentivize managerial manipulation of stock prices through the use of abnormal positive tone. The findings call upon investors to exercise greater vigilance in examining narrative information in annual reports, as abnormally positive tones may not always faithfully represent performance but rather reflect managerial self-interest. Social implications: There is an emphasis on the importance of robust oversight mechanisms within corporate governance bodies to curb the manipulation of tone for managers’ personal gain. Originality/value: This study enhances the theoretical foundation of ESG studies, offering a holistic perspective on the intricate interplay among ESG performance, managerial behavior and financial markets, with potential implications for researchers, investors and regulators.

Purpose: This study aims to investigate the impact of environmental, social and governance (ESG) performance on audit pricing and examine how linguistic impression management in annual reports reshapes this relationship. Specifically, it explores the role of abnormal positive tone as a mechanism that either facilitates or suppresses the transmission of ESG signals into audit fees across auditors of differing quality. Design/methodology/approach: Using a panel data set of 3,386 nonfinancial Chinese listed firms from 2010 to 2022, this study integrates textual analysis with econometric modeling to quantify abnormal positive tone and assess its interaction with ESG performance. The analysis uses a dual-path framework to disentangle substantive risk-mitigation signals from symbolic rhetorical manipulation. To ensure robustness, this study incorporates alternative ESG measures, lagged variables, propensity score matching and Heckman two-stage models. Findings: Results reveal that ESG performance significantly reduces audit fees exclusively for firms audited by high-quality auditors, suggesting that these auditors effectively translate ESG credentials into lower risk assessments. In contrast, this relationship is absent among lower-quality auditors. Crucially, this study identifies a significant suppression effect among the lower-quality auditors: while superior ESG performance reduces inherent risk, it simultaneously induces abnormal positive tone, where the upward pricing pressure from identified narrative risks offsets the risk-mitigating benefits of ESG performance. This internal conflict between substantive signals and rhetorical noise leads to pricing paralysis, where the fee-reduction benefits of ESG are effectively neutralized. Conversely, high-quality auditors exhibit governance-deterrence, filtering out narrative noise to achieve superior audit pricing efficiency. Originality/value: This study contributes to the audit pricing literature by introducing narrative tone as a behavioral channel through which ESG performance shapes auditors’ judgments. It integrates impression management theory with audit quality and reputation frameworks, offering a nuanced understanding of how linguistic cues influence risk perception. Methodologically, it advances research on nonfinancial conduct by operationalizing narrative tone as a measurable indicator of disclosure risk, highlighting that audit quality is the fundamental determinant of whether ESG performance is priced as a reliable signal or dismissed as rhetorical noise.