Financial reporting of good news and bad news: evidence from accounting narratives

Clatworthy, Mark; Jones, Michael

doi:10.1080/00014788.2003.9729645

Cited by 364 publications

(409 citation statements)

References 37 publications

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“…They found that firms with impending declines in sales growth and profit margin bias the tone upwards and that the tone depends on managerial incentive variables. Clatworthy and Jones (2003) look at how chairmen's narratives relate to profit before taxation and find that management tends to report in a way that best serves its own interests, crediting itself for good news and attributing bad news to the external environment. Finally, Brennan, M A N U S C R I P T…”

Section: Accepted Manuscriptmentioning

confidence: 99%

Market reaction to the positiveness of annual report narratives

Yekini

Wisniewski

Millo

2016

The British Accounting Review

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This paper focuses on narratives published by UK companies, defined here as the content of annual reports excluding financial statements and notes to accounts. We endeavour to gauge the tone of these narratives by recording the frequency of positive words appearing in the text. We show that the extent of positiveness is related to market reaction around the disclosure date. This conclusion is maintained even after controlling for the financial figures that are reported simultaneously and company-specific characteristics. Consequently, narratives should not be perceived as mere impression management tools, but also as conduits for disseminating price-sensitive information.JEL codes: M41; G12; G14

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Section: Accepted Manuscriptmentioning

confidence: 99%

Market reaction to the positiveness of annual report narratives

Yekini

Wisniewski

Millo

2016

The British Accounting Review

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“…In corporate reporting, impression management occurs when management selects information to display and presents the information in a manner that distorts readers' perceptions of corporate achievements (Merkl-Davies and Brennan, 2007). This implies that management behave opportunistically and provide self-serving information to enhance the capital market perceptions of their abilities and company's prospects (e.g., Clatworthy and Jones, 2003). In the context of SNC, managers may have a propensity to provide more SNC on amounts in the financial statement that show them in good light.…”

Section: Literature Reviewmentioning

confidence: 99%

“…There are two possible explanations for this focus. One, from the perspective of the impression management literature, management might be commenting on income statement amounts because performance is good, and wants to portray themselves in good light (Clatworthy and Jones, 2003). Alternatively, managers know that the most read financial statement by both analysts and individual investors alike is the income statement (e.g.…”

Section: Descriptive Statisticsmentioning

confidence: 99%

“…The second perspective is that managers have incentives to provide supplementary commentary to exploit the information asymmetries and engage in impression management (Clatworthy and Jones, 2003;Barton and Mercer, 2005).…”

Section: Literature Reviewmentioning

confidence: 99%

“…Although the impression management studies examined supplementary commentary, they have focused mainly on revenues, profit and earnings per share (see Aerts, 1994;Clatworthy and Jones, 2003) so that there is no comprehensive evidence on SNC. Additionally, these studies have focused on examining the self-serving behaviour of managers in explaining performance.…”

Section: Introductionmentioning

confidence: 99%

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Board structure and supplementary commentary on the primary financial statements

Tauringana

Mangena

2014

Journal of Applied Accounting Research

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PurposeThis research investigates the relationship between the extent and focus of supplementary narrative commentary (SNC) on amounts reported in the primary financial statements and board structure variables. Design/Methodology/ApproachThe study uses the disclosure index methodology to measure the extent of SNC in annual reports of 167 FTSE 250 companies. Ordinary Least Squares (OLS) regression analysis is employed to examine the association between the extent and focus of SNC and board structure variables. FindingsThe findings show that the extent of SNC on amounts reported in the primary financial statements is about 30%, suggesting that companies provide commentary on a small number of amounts reported in the financial statements. In terms of focus of SNC, companies provide greater SNC on amounts in the income statement relative to the balance sheet. The regression results indicate that the extent of SNC is negatively associated with board size, and positively associated with audit committee independence and financial expertise. Focus of SNC is negatively related to audit committee independence and finance expertise. Originality/ValueThe research contributes to both the voluntary disclosure and impression management literature streams. The findings provide evidence of the extent and focus of SNC on amounts in the financial statements. They also demonstrate that board structure variables are related to the extent and focus of SNC on amounts in primary financial statements. These findings have implications for policy makers who have responsibilities for ensuring that users of annual reports receive adequate information to make decisions.

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Narrative Accounting Disclosures

Aerts

2015

Wiley Encyclopedia of Management

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Narrative accounting disclosures are an integral part of the corporate financial reporting package. They are deemed to provide a view of the company “through the eyes of management”. The narratives represent management's construal of corporate events and are largely discretionary. Research in accounting narratives examines informational and presentational aspects of narrative financial reporting. Narrative accounting disclosures are studied from an informational perspective through usefulness surveys, predictive ability research, and thematic and readability studies. Presentational studies are related to impression management and primarily focus on selectivity and bias in the content patterns of the narrative disclosures. In addition, contextual factors affecting the content of the narrative disclosures have been investigated. Cross‐sectional and temporal variation in narrative accounting disclosures may originate from internal sources (e.g., performance changes, the establishment of routines, and corporate governance structures) and external forces (e.g., analyst following, regulatory monitoring, and litigation risk).

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Financial reporting of good news and bad news: evidence from accounting narratives

Cited by 364 publications

References 37 publications

Market reaction to the positiveness of annual report narratives

Market reaction to the positiveness of annual report narratives

Board structure and supplementary commentary on the primary financial statements

Narrative Accounting Disclosures

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