Investigating the Relationship between Managers' Narcissism and the Optimistic Tone of Financial Reporting: The Adjusting Role of Earnings Management

Akbarlou, Elnaz; Zeynali, Mehdi; Alinezhad Sarokolaei, Mehdi; Baradaran Hassan Zadeh, Rasoul

doi:10.22054/qjma.2021.59285.2237

Document Type : Research Paper

Authors

¹ PhD.D. Candidate, Department of Accounting, Tabriz Branch, Islamic Azad University, Tabriz, Iran.

² Assistant Prof., Department of Accounting, Tabriz Branch, Islamic Azad University, Tabriz, Iran.

³ Associate Prof., Department of Accounting, Tabriz Branch, Islamic Azad University, Tabriz, Iran.

https://doi.org/10.22054/qjma.2021.59285.2237

Abstract

Narcissist managers, with behavioral characteristics such as selfishness, domination, and self-aggrandizement, don’t consider rules and regulations important. They manipulate detailed accounting reports opportunistically using positive words in an optimistic manner. This study aims to investigate the relationship between managers' narcissism and the optimistic tone of financial reporting with the moderating role of earnings management. To measure narcissism, two proxies are used: the area of managers’ signatures and the ratio of managers' remuneration to the total annual salary of employees, and vocabulary frequency as a criterion to measure optimistic tone. The sample includes 115 companies listed in Tehran Stock Exchange throughout 2011- 2018. To test the research hypotheses, regression has been used. Results indicate that there is a positive and meaningful correlation between the narcissism of managers and the optimistic tone in financial reporting. In other words, narcissist managers consider financial reports prepared based on an optimistic tone as an opportunity to satisfy their insatiable desire for self-promotion. Earnings management has got a positive moderating effect on the correlation of narcissism of managers and optimistic tone in financial reporting.

Keywords

Main Subjects

Accounting report

References

بذرافشان، وجیهه، بذرافشان، آمنه و صالحی، مهدی. (1397). بررسی تأثیر خودشیفتگی مدیران برکیفیت گزارشگری مالی. بررسی‌های حسابداری و حسابرسی، 25(4)، 457-478.

پورکریم، محمد، جبارزاده کنگرلویی، سعید، بحری ثالث، جمال و قلاوندی، حسن. (1398). تأثیر حاکمیت شرکتی بر لحن گزارشگری مالی. دو فصلنامه حسابداری ارزشی و رفتاری، 8(4)، 33-69.

دیانتی دیلمی، زهرا. (1397). روش تحقیق کیفی و کمی در حسابداری همراه با نرم‌افزار SPSS (اول). تهران: انتشارات عدالت نوین، 129.

رهنمای رودپشتی، فریدون و محسنی، عبدالرضا. (1397). مدیریت نوشتار و مدیریت سود. پژوهش‌های تجربی حسابداری، 8(30)، 21-51.

فغفورمغربی،یگانه،سجادی،حسین،اثنی عشری،حمیده،رضائیان،علی.(1399). تاثیر احساس زبانی، خوانایی و سبک پردازش اطلاعات (خبرگی) برقضاوت سرمایه گذاران: شواهدآزمایشی. مطالعات تجربی حسابداری مالی، 16(65)، 1-34.

میرزایی، سعیده، عبدلی، محمدرضا و کوشکی جهرمی، علیرضا. (1399). بررسی تأثیر لحن بدبینانه گزارشگری مالی بر گزارشگری مالی متهورانه. مطالعات تجربی حسابداری مالی، 16(65)، 109-138.

Aly, D., El-Halaby, Sh., & Hussainey, Kh. (2017). Tone disclosure and financial performance: evidence from Egypt. Accounting Research Journal, 31(1), 63-74.

Bazrafshan, V., Bazrafshan, A., & Salehi, M. (2018). Investigating the Influence of Managers' Narcissism on Financial Reporting Quality. Accounting and Auditing Review, 25(4): 457-478. [In Persian]

Boudt, K., & Thewissen, J. (2019). Jockeying for position in CEO letters: Impression management and sentiment analytics. Financial Management, 48(1), 77-115.

Boyett, J. H. (2006). Surviving the destructive narcissistic leader. Administrative science quarterly, 48,1-10.

Brown, S., & Hillegeist, S. (2007). How Disclosure Quality Affects the Level of Information Asymmetry. Review of Accounting Studies, 12, 443-477.

Buchholz, F., Jaeschke, R., Lopatta, K., & Maas, K. (2018). The use of optimistic tone by narcissistic CEOs. Accounting, Auditing & Accountability Journal, 31(2), 531-562.

Carlsson, S., & Lamti, R. (2015). Tone Management and Earnings Management. Master Thesis, Gothenburg: Gothenburg University.

Davis, A. K., Ge, W., Matsumoto, D., & Zhang, J. L. (2014). The effect of manager-specific optimism on the tone of earnings conference calls. Review of Accounting Studies, 20(2), 639-673.

Davis, A., & Tama-Sweet, I. (2012). Managers Use of Language across Alternative Disclosure Outlets: Earnings Press Releases versus MD & A. Contemporary Accounting Research, 29(3), 804-837.

Demers, E., & Vega, C. (2010). Soft Information in Earnings Announcement: News or Noise?. Working Paper, 33.

Dianati Deylami, Z. (2019). Qualitative and quantitative research methods in accounting with SPSS software. Tehran: Edalat Novin Publication, 129. [In Persian].

Evans, L. (2004). Language, translation and the problem of international accounting communication. Accounting, Auditing & Accountability Journal, 17(2), 210-248.

Faghfour Maghrebi, Y., Sajadi, S. H., Esnaashari, H., & Rezaeian, A. (2020). The effect of language sentiment, readability and information processing style (sophistication) on investors’ judgment: experimental evidence. Empirical Studies in Financial Accounting, 16(65), 1-34. [In Persian]

Feldman, R., Govindaraj, S., Livnat, J., & Segal, B. (2010). Managements Tone Change: ost Earnings Announcement Drift and Accruals. Review of Accounting Studies, 15(4), 915-953.

Fisher, R., Van Staden, C., & Richards, G. (2018). Tone and the Accounting Narrative. Hawaii Accounting Research Conference.

Ham, Ch., Lang, M., Seybert, N., & Wang, S. (2017). CFO Narcissism and Financial Reporting Quality. Journal of Accounting Reporting Quality, 55(5), 1089-1135.

Hung, X., Teoh, S., & Zhang, Y. (2014). Tone Management. The Accounting Review, 89(3), 1083-1113.

Kernberg, O. F. (1993). Severe personality disorders: Psychotherapeutic strategies. Yale University Press.

Li, F. (2011). Textual analysis of corporate disclosures: A survey of the literature. Journal of Accounting Literature, 29, 143-165.

Lo, K., Ramos, F., & Rogo, R. (2017). Earnings management and annual report readability. Journal of Accounting and Economics, 63(1), 1-25.

Loughran, T., & McDonald, B. (2011). When is a liability not a liability? Textual analysis, dictionaries, and 10-Ks. Journal of Finance, 66(1), 35-65.

Mirzayee, S., Abdoli, M. R., & Koushki Jahromi, A. (2020). Financial reporting language Bad on Aggressive Financial Reporting Investor protection. Empirical Studies in Financial Accounting, 16(65), 109-138. [In Persian]

Pourkarim, M., Jabbarzadeh Kangarlouei, S., Bahri Sales, J., & Galavandi, H. (2020). The Impact of Corporate Governance on Tone of Financial Reporting. Valued and Behavioral Accountings Achievements, 8(4), 33-62. [In Persian]

Rahnamay Roodposhti, F., & Mohseni, A. (2019). Management, Writing Management and Earnings Management. Journal of Empirical Research in Accounting, 8(30), 21-51. [In Persian]

Rutherford, B. A. (2005). Genre Analysis of Corporate Annual Report Narratives: A Corpus Linguistic-Based Approach. Journal of Business Communication, 42(4), 349-378.

Shafayat, H. (2019). Ceo overconfidence and tone of annual report. Master Thesis, Saskatoon: University of Saskatchewan.

Smith, M., & Taffler, R. J. (2000). The chairman’s statement A content analysis of discretionary narrative disclosures. Accounting, Auditing & Accountability Journal, 13(5), 624-647.

Xu, W., & Qi, D. (2020). Abnormal tone in management earnings forecast,media negative coverage, and insider trading. Asia-Pacific Journal of Accounting & Economics, 10, 1-26.

Yuthas, K., Rogers, R., & Dillard, J. F. (2002). Communicative action and corporate annual reports. Journal of Business Ethics, 41, 141-157.

Investigating the Relationship between Managers' Narcissism and the Optimistic Tone of Financial Reporting: The Adjusting Role of Earnings Management

References

References

Volume 18, Issue 72January 2022Pages 169-192

Volume 18, Issue 72
January 2022
Pages 169-192