Exploring the Use of Control Rhetoric in CEO Letters: Perceptions of Financial Statement Users

Journal of Accounting, Ethics & Public Policy, Vol. 13, No. 1, p. 62, 2012

19 Pages Posted: 2 Apr 2012 Last revised: 15 Apr 2012

See all articles by Hui Lin

Hui Lin

DePaul University - School of Accountancy and Management Information Systems (MIS)

Tracy N. Reed

Appalachian State University - Department of Accounting

Date Written: March 31, 2012

Abstract

This research explores the use of control rhetoric in CEO letters between the pre and post Sarbanes Oxley periods and examines financial statement users’ perception of internal controls and company performance from the CEO letter. We compare the amount of control rhetoric included in CEO letters contained in the annual report in pre- and post-SOX periods and conduct an experiment to determine if the amount of control rhetoric would influence financial statement users’ perception of internal controls and opinion of the company. The results indicate that control rhetoric indeed increased after the passage of SOX for organizations overall were most salient in large size companies. In addition, our results indicate that users are affected by the use of control rhetoric in the CEO letter but their assessment of internal controls did not influence their perception of the company performance. This study confirms the organizational emphasis on internal controls and corporate governance after the passage of SOX. It shows that CEOs attempt to project the company’s effectiveness of internal controls through the letter to the shareholders more since SOX. Further, the results demonstrate that perceptions of readers of financial statements are affected by the use of control rhetoric in the CEO letter. We recognize utilizing undergraduate students as financial statement users may limit the external validity and generalizability of the study.

Keywords: CEO letter, corporate governance, internal controls, rhetoric, Sarbanes-Oxley, SOX

JEL Classification: M40, M41, M48

Suggested Citation

Lin, Hui and Reed, Tracy N., Exploring the Use of Control Rhetoric in CEO Letters: Perceptions of Financial Statement Users (March 31, 2012). Journal of Accounting, Ethics & Public Policy, Vol. 13, No. 1, p. 62, 2012, Available at SSRN: https://ssrn.com/abstract=2032288

Hui Lin (Contact Author)

DePaul University - School of Accountancy and Management Information Systems (MIS) ( email )

Chicago, IL 60604
United States

Tracy N. Reed

Appalachian State University - Department of Accounting ( email )

United States

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