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Financial performance explanations and institutional setting

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  • Walter Aerts
  • Ann Tarca

Abstract

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 UK, 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.

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  • Walter Aerts & Ann Tarca, 2010. "Financial performance explanations and institutional setting," Accounting and Business Research, Taylor & Francis Journals, vol. 40(5), pages 421-450.
    • Handle: RePEc:taf:acctbr:v:40:y:2010:i:5:p:421-450
    DOI: 10.1080/00014788.2010.9995322
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    3. Noha Elberry & Khaled Hussainey, 2021. "Governance Vis-à-Vis Investment Efficiency: Substitutes or Complementary in Their Effects on Disclosure Practice," JRFM, MDPI, vol. 14(1), pages 1-16, January.
    4. Dominika Hadro & Karol Marek Klimczak & Marek Pauka, 2017. "Impression Management in Letters to Shareholders: Evidence from Poland," Accounting in Europe, Taylor & Francis Journals, vol. 14(3), pages 305-330, September.
    5. Tarca, Ann & Street, Donna L. & Aerts, Walter, 2011. "Factors affecting MD&A disclosures by SEC registrants: Views of practitioners," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 20(1), pages 45-59.
    6. Isabel-María García-Sánchez & Víctor Amor-Esteban & Alejandra García-Sánchez, 2021. "Different Leaders in a COVID-19 Scenario: CEO Altruism and Generous Discourse," Sustainability, MDPI, vol. 13(7), pages 1-19, March.
    7. Berkin, Anil & Aerts, Walter & Van Caneghem, Tom, 2023. "Feasibility analysis of machine learning for performance-related attributional statements," International Journal of Accounting Information Systems, Elsevier, vol. 48(C).
    8. Belinda Crawford Camiciottoli, 2012. "Oral financial reporting: A rhetorical analysis of earnings calls," FINANCIAL REPORTING, FrancoAngeli Editore, vol. 2012(4), pages 15-34.
    9. Francesco Mazzi & Paul André & Dionysia Dionysiou & Ioannis Tsalavoutas, 2017. "Compliance with goodwill-related mandatory disclosure requirements and the cost of equity capital," Accounting and Business Research, Taylor & Francis Journals, vol. 47(3), pages 268-312, April.
    10. Arianna Pinello & Lee Puschaver & Ara Volkan, 2020. "The Relationship Between Critical Accounting Estimates And Critical Audit Matters," Accounting & Taxation, The Institute for Business and Finance Research, vol. 12(1), pages 23-33.

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