Financial Performance Explanations and Institutional Setting

Accounting and Business Research, Vol. 40, No. 5, pp. 421-450, 2010

68 Pages Posted: 17 Feb 2010 Last revised: 30 Jul 2014

See all articles by Walter Aerts

Walter Aerts

University of Antwerp

Ann Tarca

University of Western Australia

Date Written: December 1, 2010


The aim of this study is to investigate whether country differences in the institutional setting for financial reporting affect the attributes of managers’ explanations of performance in management commentary reports. We include 172 listed companies from five industries (building materials, food processors, pharmaceuticals, biotechnology and retail) in the United Kingdom, Australia, the USA and Canada in 2003. We find significant country differences in attributional properties of performance explanations in management commentary reports. The US and Canadian companies are generally less assertive and less defensive in causal explanations offered compared to their counterparts in the UK and Australia. The North American companies are also more extensive and formal in their explanations, relying more heavily on technical-accounting language. These tendencies are most pronounced in the USA, where the aggregate of private and public enforcement is greatest. Taken together, our evidence suggests that higher expected regulatory and litigation costs induce a more elaborative, but risk-averse explanatory stance that may well reduce the overall incremental value of the explanations offered.

Keywords: Management discussion and analysis (MD&A), Operating and Financial Review (OFR), regulation, enforcement, litigation, attributional statements

JEL Classification: M41, K22

Suggested Citation

Aerts, Walter and Tarca, Ann, Financial Performance Explanations and Institutional Setting (December 1, 2010). Accounting and Business Research, Vol. 40, No. 5, pp. 421-450, 2010, Available at SSRN:

Walter Aerts

University of Antwerp ( email )

Prinsstraat 13
Antwerpen, B-2000
003232654110 (Phone)
003232654064 (Fax)

Ann Tarca (Contact Author)

University of Western Australia ( email )

Business School
35 Stirling Highway
Crawley WA 6009
+61 8 6488 3868 (Phone)
+61 8 6488 1047 (Fax)

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