Voluntary Disclosure in Annual Reports: The Association between Corporate Financial Performance, Graph Use, and Graph Type
Posted: 3 May 2005 Last revised: 26 Oct 2012
Date Written: April 22, 2005
Abstract
Prior archival research indicates that companies reporting increases in key financial performance variables (KFVs) are more likely to include graphs of these measures in their annual reports. This study expands prior work by using cognitive and social psychology theories to predict that the decision to graph depends not only the direction, but also on the magnitude of changes in corporate financial performance. We also examine management choices related to the type of annual report graphs, i.e., whether companies use simple or artistically embellished graph formats to present financial information. Using data from 163 top US companies that were in continual existence from 1999 to 2002, we replicate earlier findings that companies with increases in corporate performance are more likely to graph KFVs. Further, we extend prior research by showing that companies with larger increases in sales are more likely to graph this measure, but companies with larger increases in the "bottom line" measures of net income and earnings per share are less likely to graph KFVs. At the same time, companies with larger decreases in corporate performance measures are less likely to use graphs. We found that companies with increases in sales are more likely to present artistically embellished sales graphs, but did not find any other relationships between direction of corporate performance change and use of embellished graphs. However, we found some evidence that the magnitude of change in corporate performance may be associated with graph type as companies with larger performance decreases are less likely to use embellished graphs and companies with larger increases are more likely to use embellished graphs. Our results indicate that the relationship between changes in corporate performance and graph usage is more complex than the simple directional relationships found in earlier research. These findings are consistent with impression management theory.
Keywords: Financial graphs, Impression management, Information presentation, Voluntary disclosure
JEL Classification: M41
Suggested Citation: Suggested Citation