An Investigation into the Measurement of Graph Distortion in Financial Reports

Posted: 2 Apr 2005

See all articles by Dineli R. Mather

Dineli R. Mather

Monash University - School of Business Systems

Paul R. Mather

La Trobe University

Alan L. Ramsay

Monash University - Department of Accounting

Abstract

The Graph Discrepancy Index (GDI), which originates from the lie factor introduced by Tufte (1983), is the mechanism commonly used in the financial graphics literature to determine whether graphs are distorted and to quantify the extent of such distortion. Whilst the GDI is critical to the financial graphics literature, little or no attention has been paid to its robustness and accuracy. We critically examine the mathematical characteristics of the GDI and show its limitations as a measure of graph distortion. We review a number of cases to demonstrate these limitations. We present an alternative measure of graph distortion, the Relative Graph Discrepancy index (RGD). Numerous simulations suggest that the RGD overcomes the problems associated with the GDI. The RGD is also tested on data presented in earlier research and the results are compared to those obtained using the GDI. In comparison with the GDI we find that the RGD is more consistent and produces slightly stronger results. We stress however that this is not a best or definitive measure but is intended to start a research process that leads to a generally accepted measure.

Keywords: Graph Discrepancy Index, Graphs, Graph distortion, Impression management

JEL Classification: M41, M45

Suggested Citation

Mather, Dineli R. and Mather, Paul R. and Ramsay, Alan, An Investigation into the Measurement of Graph Distortion in Financial Reports. Available at SSRN: https://ssrn.com/abstract=680822

Dineli R. Mather

Monash University - School of Business Systems ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Paul R. Mather (Contact Author)

La Trobe University ( email )

School of Accounting
Bundoora
Melbourne, Victoria 3086
Australia
+61-3-9479-5264 (Phone)

Alan Ramsay

Monash University - Department of Accounting ( email )

Building 11E
Clayton, Victoria 3800
Australia

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