The chairman's statement and corporate financial performance

Article Abstract:

Agency theory and signalling theory both suggest that firms are motivated to disclose excellence of financial performance in an unambiguous manner. We might expect, therefore, that good financial performance is associated with a clear and readable Chairman's narrative and poor performance with an obscure or misleading message. Extant work linking corporate performance with clarity of executive narrative fails to distinguish sample cases by industry or financial status. This paper seeks to overcome the consequences of such deficiencies explicitly, by conducting a systematic analysis of the relationship between narrative complexity and alternative measures of financial performance, for a matched sample of failed/non-failed companies across common industries. This study employs separate measures of the readability and the understandability of the chairman's narrative and finds them to be significantly related to overall financial performance and individual measures of performance, most notably liquidity. Poor readability is strongly associated with poor financial performance and ease of readability with relative financial success. The implication is that firms actively signal good news while obscuring, perhaps deliberately, messages which convey bad news. (Reprinted by permission of the publisher.)

Analysis, Profits, Practice, Executives, Organizational communication, Corporate profits

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The incremental effect of narrative accounting information in corporate annual reports

Article Abstract:

An experimental methodology is developed to overcome the emission of the information content of voluntary unaudited disclosures and the manner of interaction with existing quantitative sources. The nature of narrative information and how it is used in decision making are examined to develop the methodology. Narrative disclosures are found to be a useful discriminatory source in the failed/non-failed decision and are shown to have a negative effect on decision making when integrated with quantitative financial sources.

Research, Financial statements, Corporation reports, Company reports, Disclosure statements (Accounting)

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Improving the communication of accounting information through cartoon graphics

Article Abstract:

Recent research has investigated the issue of improving the communicative ability of financial statements, and has in particular looked at the potential for the use of the schematic face as a communication device. It was found that schematic faces are processed more rapidly than more traditional ways of presenting information by many different types of users. No loss of accuracy was noted.

Accounting, auditing, & bookkeeping, Accounting & Auditing Services, Accounting, Tax Preparation, Bookkeeping, and Payroll Services, Methods, Accounting

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