Financial reporting of good news and bad news: evidence from accounting narratives

Mark Clatworthy () and Michael Jones

Accounting and Business Research, 2003, vol. 33, issue 3, 171-185

Abstract: Accounting narratives are an increasingly important medium of financial communication. In particular, they play a crucial role in the corporate annual report, allowing company management to present annual performance to users in a readily accessible manner. Research suggests that such narratives are widely used and considered important in the investment decisions of private and institutional investors. However, accounting narratives are unaudited and thus may be subject to impression management. This paper focuses on the chairman's narratives of the top 50 and bottom 50 listed UK companies ranked by percentage change in profit before taxation. The research examines whether companies with improving and declining performance report good and bad news in different ways. The findings suggest that both groups of companies prefer to emphasise the positive aspects of their performance. In addition, both groups prefer to take credit for good news themselves, while blaming the external environment for bad news. Thus, despite reporting on markedly different financial performance, management approach it in the same self-serving way. The results of this and previous research have important policy implications for financial reporting. The current auditing regulations could usefully be extended so that the narratives are more rigorously reviewed.

Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (104)

Downloads: (external link)
http://hdl.handle.net/10.1080/00014788.2003.9729645 (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:taf:acctbr:v:33:y:2003:i:3:p:171-185

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RABR20

DOI: 10.1080/00014788.2003.9729645

Access Statistics for this article

Accounting and Business Research is currently edited by Vivien Beattie

More articles in Accounting and Business Research from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().