Forward-Looking Reporting Caught between Company Performance and the Economic Situation – Evidence from Germany

46 Pages Posted: 30 Jun 2015 Last revised: 7 Jul 2015

See all articles by Kerstin Fehre

Kerstin Fehre

Karlsruhe Institute of Technology

Julia Hoefer

Karlsruhe Institute of Technology

Date Written: June 30, 2015

Abstract

This research explores the impact of both company profitability and economic situation on the degree of future orientation in company reporting and the textual emphasis within forward-looking statements (company-external vs. company-specific prospective information). To this end, the annual reports of all German HDAX companies for the period 2003-2012 were examined. The results of the regression analyses reveal that future orientation in company reporting seems to be in tandem with company profitability and general improvement of the economic situation. Hence, companies in an advantageous position send signals of long-lasting positive developments to capital markets. Results pertaining to textual emphasis of companies’ forward-looking reporting demonstrate that the degree of forward-looking statements related to the external environment of a company increases with a rise in the company’s profitability, but also with a worsening of the general economic situation. In contrast, the degree of forward-looking statements related to the internal situation of the company increases with an improvement in the overall economic scenario, and increases further if associated with the company’s profitability. Thus, prospective reporting focuses on the company’s environment more strongly only if the economic situation is in decline (problem-oriented attention control) or if the current advantageous position of the company should be preserved by considering potential opportunities and risks arising from the company’s environment.

Keywords: Future-Oriented Reporting, Forward-looking statements, Computer-Aided Text Analysis, Panel Analysis

JEL Classification: M41, C33, C88

Suggested Citation

Fehre, Kerstin and Hoefer, Julia, Forward-Looking Reporting Caught between Company Performance and the Economic Situation – Evidence from Germany (June 30, 2015). Available at SSRN: https://ssrn.com/abstract=2624964 or http://dx.doi.org/10.2139/ssrn.2624964

Kerstin Fehre (Contact Author)

Karlsruhe Institute of Technology ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany

Julia Hoefer

Karlsruhe Institute of Technology ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany

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