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Firm performance, reporting goals, and language choices in narrative disclosures

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  • Asay, H. Scott
  • Libby, Robert
  • Rennekamp, Kristina

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.

Suggested Citation

  • Asay, H. Scott & Libby, Robert & Rennekamp, Kristina, 2018. "Firm performance, reporting goals, and language choices in narrative disclosures," Journal of Accounting and Economics, Elsevier, vol. 65(2), pages 380-398.
    • Handle: RePEc:eee:jaecon:v:65:y:2018:i:2:p:380-398
    DOI: 10.1016/j.jacceco.2018.02.002
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    References listed on IDEAS

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