Executives vs. governance: Who has the predictive power? Evidence from narrative tone

Hesham Bassyouny () and Tarek Abdelfattah ()
Additional contact information
Hesham Bassyouny: University of Northampton
Tarek Abdelfattah: University of Portsmouth

Review of Quantitative Finance and Accounting, 2022, vol. 58, issue 1, No 11, 382 pages

Abstract: Abstract This study aims to investigate not only Narrative Disclosure Tone predictive power, but also who has this power within companies to predict future performance in the UK context (executive vs. governance). We conduct a computerized textual analysis to measure the tone of UK annual reports narratives. Our results contribute to accounting and financial reporting literature by showing that corporate narrative tone can predict future performance. However, answering our main question about who has this predictive power, we found executives’ reporting tone has the power to predict a company’s future performance but not governance tone. Considering the moderation effect of the 2014 financial reporting guidance, we found this guidance increases corporate narrative tone power in general and executive tone in particular in predicting future performance. Moreover, the current study contributes to financial reporting literature by providing a UK evidence, which operates under the principles-based approach with more flexibility in financial reporting than the US context that follows the rules-based approach. Finally, this study has practical implications for regulators and external users of financial reporting.

Keywords: Narrative reporting; Tone predictive power; Textual analysis; Executives; Governance (search for similar items in EconPapers)
JEL-codes: G34 G40 M48 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://link.springer.com/10.1007/s11156-021-00997-y Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:rqfnac:v:58:y:2022:i:1:d:10.1007_s11156-021-00997-y

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/11156/PS2

DOI: 10.1007/s11156-021-00997-y

Access Statistics for this article

Review of Quantitative Finance and Accounting is currently edited by Cheng-Few Lee

More articles in Review of Quantitative Finance and Accounting from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().