Financial Performance and Writing Tone Management in Financial Reporting

Document Type : Research Paper

Authors

1 Assistant Prof. , Department of Accounting, Bushehr branch, Islamic Azad University, Bushehr, Iran

2 Prof. , Department of Accounting, Science and Research branch, Islamic Azad University, Tehran, Iran

Abstract

A rhetorical use of narratives is important in order to understand quantitative information. Writing tone is using positive rather than negative words in a qualitative text. Writing tone management is choosing such a writing tone level in a qualitative text which is incommensurate with concurrent quantitative information (Huang et al, 2014). Writing tone management may be used for strategic or informative motives. When a firm's basic information is more appropriate than provided quantitative information due to limitations in accounting standards, writing tone management may be employed for informative functions. However, writing tone management may be used for strategic functions in order to change perception of users about a firm's basic information. The main purpose of this research is to investigate whether writing tone management can indicate the effects of strategic motives of managers to mask poor future performance. The other purpose is to investigate the relation between writing tone management and future financial performance. The sample consists of firms listed in Tehran Stock Exchange for the period from 2008 to 2015. To test hypotheses, the correlation method and multiple linear regression analysis are used. The findings show a significant negative relation between writing tone management and future financial performance. Therefore, managers use writing tone management for strategic motives and in order to mask poor future performance. The main purpose of this research is to investigate whether writing tone management can identify the effects of strategic motives of managers to mask poor future performance. The other purpose is investigate the relation between writing tone management and future financial performance using data for the period 2008 to 2015 including listed firms on Tehran Stock Exchange. Correlation and multiple linear regression analysis for hypothesis test are used.
The findings show a negative relationship between writing tone management and future financial performance. Therfore managers used writing tone management for strategic motives and mask poor future performance.

Keywords

Main Subjects


فریدونی، فرشید. (1391). مجموعه قوانین. چاپ اول، تهران: موسسه انتشاراتی پژوهشگران نشردانشگاهی.
نیکو مرام، هاشم.، نوروش، ایرج.، و مهر آذین، علیرضا. (1388). ارزیابی مدل­های مبتنی بر اقلام تعهدی برای کشف مدیریت سود. مجله پژوهش­هایمدیریت، شماره 82، پاییز، 20-1.
Abrahamson, E. , Amir, E. (1996). The Information Content of the President's Letter to Shareholders. Journal of Business Finance and Accounting: 23 (8) , 1157-1182
Amernic, J. , Craig, R. (2007). Guidelines for CEO-speak: Editing the Language of Corporate Leadership. Strategy and Leadership: 35 (3) , 25-31
Amernic, J. , Craig, R. , Tourish, D. (2010). Measuring and Assessing Tone at the Top Using Annual Report CEO letters. Edinburgh: Institute of Chartered Accountants of Scotland. ISBN: 987-1-904574-55-2
Carlsson, S. , Lamti, R. (2015). Tone Management and Earnings Management. School of Business, Economics and Law, Gothenburg University, Master Degree Project No. 2015: 18.
Clatworthy, M. , Jones, J. J (2003). Financial Reporting of Good News and Bad News: Evidence from Accounting Narratives. Accounting and Business Research 33 (3): 171-185.
Clatworthy, M. , Jones, J. J (2006). Differential Reporting Patterns of Textual Characteristics and Company Performance in the Chairman's Statement. Accounting, Auditing and Accountability Journal 19 (4): 493-511.
Courtis, J. K (1998). Annual Report Readability Variability: Tests of the Obfuscation Hypothesis. Accounting, Auditing and Accountability Journal 11 (4): 459-472.
Craig, R. J. , Brennan, N. M. , (2012). An Exploration of the Relationship between Language Choice in CEO Letters to Shareholders and Corporate Reputation. Accounting Forum, 36, 166-177.
Davis, A. K. , Tama-Sweet, I. (2012). Managers Use of Language Across Alternative Disclosure Outlets: Earnings Press Releases versus MD&A. Contemporary Accounting Research: 29 (3) , 804-837.
Feradouni, F. (2012). General Rules (1nd Ed.). Tehran: Institute of Academic Publishing Researchers. (in persian).
Fisher, S. A. , Hu, M. Y. (1988). Does the CEO's Letter to the Shareholders Have Predictive Value? Business Forum: 14 (1) , 22-24.
Hales, J. , Kuang, X. , Venkataraman, S. (2010). Who Believes the Hype? An Experimental Examination of How Language Affects Investor Judgments. Journal of Accounting Research: 49 (1) , 233-255.
Henry, E. (2008). Are Investors Influenced by How Earnings Press Releases are Written? Journal of Business Communication: 45 (4) , 363-407
Hildebrandt, H. W. , Snyder, R. D. (1981) The Pollyanna Hypothesis in Business Writing: Initial Results, Suggestions for Research. The Journal of Business Communication: 18 (1) , 5-15
Huang, X. , Teoh, S. , Zhang, Y. (2014). Tone Management. The Accounting Review: 89 (3) ,1083-1113.
Li, F. (2010). The Information Content of Forward-Looking Statements in Corporate Filings – A Naive Bayesian Machine Learning Approach. Journal of Accounting Research: 48 (5) , 1049-1102.
Loughran, T. , McDonald, B. (2011). When is a Liability not a Liability? Textual Analysis, Dictionaries, and 10-Ks. The Journal of Finance: 66 (1) ,35-65.
McConnell, D. , Haslem, J. A. & Gibson, V. R. (1986). The President's Letter to Stockholders: A New look. Financial Analysts Journal: 42 (5) , 66-70
Merkl-Davies, D. M. , Brennan, N. M. (2007). Discretionary Disclosure Strategies in Corporate Narratives: Incremental Information or Impressions Management? Journal of Accounting Literature: 27, 116-196
Nikoumaram, H. , Noravesh, I. , Mehr-Azin, A. (2010). Evaluation of Accruals-Based Models for the Discovery of Earnings Management. Journal of Management Research, Issue fall: 82, 1-20. (in persian).
Patelli, L. , Pedrini, M. (2014). Is the Optimism in CEO's Letters to Shareholders Sincere? Impression Management Versus Communicative Action Curing the Economic Crisis. Journal of Business Ethics: 124, 19-34
Rutherford, B. A. (2005). Genre Analysis of Corporate Annual Report Narratives: A Corpus Linguistic-Based Approach. Journal of Business Communication: 42, (4) , 349-378.
Tan, H. , Wang, E. , Zhou, B. (2014). When the Use of Positive Language Backfires: The Joint Effect on Tone, Readability, and Investor Sophistication on Earnings Judgments. Journal of Accounting Research: 52 (1) , 273-302.
Thomas, J. (1997). Discourse in the Marketplace: The Making of Meaning in Annual Reports. Journal of Business Communication: 34 (1) , 47-6.