Management’s choice of tone in letters to shareholders: sincerity, bias and incentives
This paper aims to identify the drivers of management reporting choices in a setting characterized by ownership concentration and weak enforcement. Previous research indicates, that tone of the letter to shareholders is correlated with performance. However, tone can be biased towards the positive wh...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
Universidad de Murcia
2021-07-01
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| Series: | Revista de Contabilidad: Spanish Accounting Review |
| Subjects: | |
| Online Access: | https://revistas.um.es/rcsar/article/view/393181 |
| _version_ | 1818773635261792256 |
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| author | Dominika Hadro Karol Marek Klimczak Marek Pauka |
| author_facet | Dominika Hadro Karol Marek Klimczak Marek Pauka |
| author_sort | Dominika Hadro |
| collection | DOAJ |
| description | This paper aims to identify the drivers of management reporting choices in a setting characterized by ownership concentration and weak enforcement. Previous research indicates, that tone of the letter to shareholders is correlated with performance. However, tone can be biased towards the positive when a company is highly responsive to stock market incentives or controlled by majority investors. Bias can be reduced by the monitoring activities of institutional investors in closely held companies. There are two major implications of the study. First, when managers bias the text, they lose the ability to communicate positive news about their company. Under rational expectations investors can detect bias based on known situational incentives and disregard the biased information. Second, the results suggest that managers manipulate tone strategically, rather than unconsciously, to satisfy the needs of key shareholder groups. |
| first_indexed | 2024-12-18T10:28:23Z |
| format | Article |
| id | doaj.art-797ee3ca307e44e5a0632e75dea20c40 |
| institution | Directory Open Access Journal |
| issn | 1138-4891 1988-4672 |
| language | English |
| last_indexed | 2024-12-18T10:28:23Z |
| publishDate | 2021-07-01 |
| publisher | Universidad de Murcia |
| record_format | Article |
| series | Revista de Contabilidad: Spanish Accounting Review |
| spelling | doaj.art-797ee3ca307e44e5a0632e75dea20c402022-12-21T21:10:55ZengUniversidad de MurciaRevista de Contabilidad: Spanish Accounting Review1138-48911988-46722021-07-0124210.6018/rcsar.393181Management’s choice of tone in letters to shareholders: sincerity, bias and incentivesDominika Hadro0Karol Marek Klimczak1Marek Pauka2Wroclaw University of Economics and Business, Wroclaw, PolandLodz University of Technology, Lodz, PolandWroclaw University of Economics and Business, Wroclaw, PolandThis paper aims to identify the drivers of management reporting choices in a setting characterized by ownership concentration and weak enforcement. Previous research indicates, that tone of the letter to shareholders is correlated with performance. However, tone can be biased towards the positive when a company is highly responsive to stock market incentives or controlled by majority investors. Bias can be reduced by the monitoring activities of institutional investors in closely held companies. There are two major implications of the study. First, when managers bias the text, they lose the ability to communicate positive news about their company. Under rational expectations investors can detect bias based on known situational incentives and disregard the biased information. Second, the results suggest that managers manipulate tone strategically, rather than unconsciously, to satisfy the needs of key shareholder groups.https://revistas.um.es/rcsar/article/view/393181Ownership concentrationToneLetter to shareholdersIncentivesTextual analysis |
| spellingShingle | Dominika Hadro Karol Marek Klimczak Marek Pauka Management’s choice of tone in letters to shareholders: sincerity, bias and incentives Revista de Contabilidad: Spanish Accounting Review Ownership concentration Tone Letter to shareholders Incentives Textual analysis |
| title | Management’s choice of tone in letters to shareholders: sincerity, bias and incentives |
| title_full | Management’s choice of tone in letters to shareholders: sincerity, bias and incentives |
| title_fullStr | Management’s choice of tone in letters to shareholders: sincerity, bias and incentives |
| title_full_unstemmed | Management’s choice of tone in letters to shareholders: sincerity, bias and incentives |
| title_short | Management’s choice of tone in letters to shareholders: sincerity, bias and incentives |
| title_sort | management s choice of tone in letters to shareholders sincerity bias and incentives |
| topic | Ownership concentration Tone Letter to shareholders Incentives Textual analysis |
| url | https://revistas.um.es/rcsar/article/view/393181 |
| work_keys_str_mv | AT dominikahadro managementschoiceoftoneinletterstoshareholderssinceritybiasandincentives AT karolmarekklimczak managementschoiceoftoneinletterstoshareholderssinceritybiasandincentives AT marekpauka managementschoiceoftoneinletterstoshareholderssinceritybiasandincentives |