Firm Performance, Reporting Goals, and Language in Narrative Disclosures

53 Pages Posted: 27 Aug 2012 Last revised: 28 Feb 2018

See all articles by H. Scott Asay

H. Scott Asay

University of Iowa - Department of Accounting

Robert Libby

Cornell University - Samuel Curtis Johnson Graduate School of Management

Kristina M. Rennekamp

SC Johnson Graduate School of Management; Cornell SC Johnson College of Business

Date Written: February 15, 2018

Abstract

We use an experiment with experienced managers to provide more-direct evidence on how reporting goals and firm performance influence language choices. We find that bad news disclosures are less readable than good news, but only when managers have a stronger self-enhancement motive. Our results suggest that this difference is driven mainly by attempts to write more readable good news reports as opposed to intentional obfuscation of poor performance. In order to frame poor performance in a positive light, managers also focus more on the future, provide causal explanations for poor performance, and use more passive voice and fewer personal pronouns.

Keywords: textual analysis, readability, narrative disclosure language, causal explanation

JEL Classification: C91, M40, M41

Suggested Citation

Asay, Hamilton Scott and Libby, Robert and Rennekamp, Kristina M., Firm Performance, Reporting Goals, and Language in Narrative Disclosures (February 15, 2018). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2137133 or http://dx.doi.org/10.2139/ssrn.2137133

Hamilton Scott Asay

University of Iowa - Department of Accounting ( email )

S232 Pappajohn Business Building
Iowa City, IA 52242-1000
United States

Robert Libby

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States
607-255-3348 (Phone)
607-254-4590 (Fax)

Kristina M. Rennekamp (Contact Author)

SC Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States
607-255-0500 (Phone)

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

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