Impression management in annual reports of the largest European companies

Abstract

Purpose – Graphs are powerful tools which affect a reader’s impression and decision making. However, graphs in annual reports have a long tradition of being designed in order to give a more favourable impression of the company’s performance. The purpose of this paper is to add to the understanding of how large listed companies in Europe choose to use and misuse graphical representation. Design/methodology/approach – This comprehensive study investigates annual reports of the top 50 European companies listed in the fortune 500 index. Company reports are analysed over a period of seven years resulting in 4,683 graphs. The authors investigate the development of the three major areas of impression management – selectivity, graphical measurement distortion and presentational enhancement – individually by company as well as collectively for the entire sample. Findings – The main findings are that topics displayed, and how they are presented, significantly change over time and that graphs are much more likely to exaggerate positive trends than to understate them. Additionally, it can be found that longer time sequences (greater than five years) almost exclusively depict favourable trends (86 per cent) and graphical measurement distortions are applied on purpose for both key financial variables (KFV) as well as for non-KFV (around 30 per cent in all years). Research limitations/implications – The sample for this study are the biggest 50 companies in Europe. It is not clear, if these companies are a representative sample for all publicly traded companies in Europe. Further research is needed regarding small and medium size companies. Practical implications – The findings show that companies primarily produce graphs in order to influence the perception of their stakeholders rather than to display the topics in accordance with the “true and fair view” principle that is requested by the IASB. However, standard setters like the IASB or the FASB have not yet released any particular information on how to use graphs correctly and avoid misleading information. This study should provide a solid base for further discussions in this regard as companies still use graphs to give a favourable impression of the company and deliberately misuse them in order to achieve this aim. Originality/value – This study contributes to the research field of impression management by answering the quest for more longitudinal studies and offers an extended focus while examining not only KFV but all variables depicted in annual reports.

Does graphical reporting improve risk disclosure? Evidence from European banks

“…This finding is in line with the prior literature on the 'abuse' of graphs in portraying financial performance (e.g., Beattie and Jones, 1992;1999;Mather et al, 1996;Falschlunger et al, 2015) as well as in environmental and social performance (Jones, 2011;Cho et al, 2012).…”

“…In line with this perspective, graphs have been found to be selective (i.e. they enhance positive and de-emphasise negative information) and providing favourable inaccurate and misrepresented information (e.g., Beattie and Jones, 1992;1999;Mather et al, 1996;Falschlunger et al, 2015). Merkl-Davies and Brennan (2007) suggest that alternative theoretical perspectives, such as a psychological perspective, could explain impression management behaviours in corporate reporting.…”

Impression Management and Retrospective Sense-Making in Corporate Annual Reports: Banks’ Graphical Reporting During the Global Financial Crisis

“…In this way, companies can present their performance in the best possible light (e.g., Beattie & Jones, 1992;2000a;Beattie, Dhanani, & Jones, 2008;Dilla & Janvrin, 2010;Falschlunger et al, 2015;Steinbart, 1989) and divert annual report users' attention away from the companies' negative news (Leung et al, 2015). Second, omission also involves non-disclosure in prominent parts of the annual report.…”

“…Measurement distortion exists when there is a discrepancy between the actual data depicted in the graph and its graphical representation (Tufte, 1983) caused by enhancing positive trends or attenuating negative trends (Beattie & Jones, 1992;2000b;Falschlunger et al, 2015). The use of performance comparisons related to competitors or years can be another way of misrepresenting information (e.g., Brühl & Kury, 2016).…”

“…selectivity) and commissions (e.g. measurement distortion) (e.g., Beattie and Jones, 1992;1999;Mather, Ramsay, & Serry, 1996;Falschlunger et al, 2015).…”