Do abnormal accruals influence abnormal tone in the CEO statements of the top 40 JSE-listed companies?

Lonwabo Mlawu, Frank Ranganai Matenda and Mabutho Sibanda
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Lonwabo Mlawu: Lecturer, Department of Accounting and Finance, Walter Sisulu University, Buffalo City Campus, Potsdam Site, Old Berlin Road, Fort Jackson, P.O. Box 1421, East London, 5200, Eastern Cape, South Africa
Frank Ranganai Matenda: Postdoctoral Research Fellow, School of Accounting, Economics, and Finance, University of KwaZulu-Natal, Westville Campus, University Road, Westville, Private Bag X54001, 4000 Durban, South Africa
Mabutho Sibanda: Professor, School of Accounting, Economics, and Finance, University of KwaZulu-Natal, Westville Campus, University Road, Westville, Private Bag X54001, 4000 Durban, South Africa

International Journal of Research in Business and Social Science (2147-4478), 2023, vol. 12, issue 8, 247-260

Abstract: The aim of this study is to examine the effect of abnormal accruals on abnormal tone in the Chief Executive Officer (CEO) statements of South Africa’s (SA) top 40 Johannesburg Stock Exchange (JSE) listed businesses in the 2021 financial year. This study employs the quantile regression analysis and the generalised linear regression model. For this evaluation, the Top 40 JSE-listed firms' integrated annual reports (IARs), which include the annual financial statements and CEO statements, were extracted from the companies' official web pages. Findings revealed that abnormal accruals have a negative relationship with the abnormal tone used in the CEO statements of the top 40 JSE-listed companies. i.e., anomalous accruals and irregular tone move in different directions, as abnormal accruals increase, the abnormal tone in CEO statements decreases. This suggests that abnormal accruals and abnormal tone do not co-occur and that companies with abnormal accruals do not conceal them using abnormal tone in their CEO statements. We recommend that the amount of flexibility and judgment given to preparers of annual financial statements be reduced to lessen the use of earnings management practices. The research adds to the sparse literature on tone management and earnings management in developing nations, particularly SA. Key Words:Abnormal Tone; Abnormal Accruals; CEO statement; integrated annual report; JSE top 40 listed companies, earnings management

Date: 2023
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