[We’re pleased to welcome authors Andrea Melis and Simone Aresu of the Università degli Studi di Cagliari. They recently published an article in the International Journal of Business Communication entitled “Analyst Following, Country’s Financial Development, and the Selective Use of Graphical Information in Corporate Annual Reports,” which is currently free to read for a limited time. Below, they briefly describes their research and its significance.
What motivated you to pursue your research?
Data visualization is a buzzword in the corporate world today. The use of graphs is widespread in corporate reports because graphs are eye-catching and easy-to-read communication tools. They are used, for instance, in financial and sustainability reports, presentations of quarterly results, and corporate websites. Graphs are also one of the few formats in financial reporting where the preparer has an ample discretion both in the content and the design. Previous research has shown that graphs are used for impression management purposes, i.e. they systematically provide a favorable impression of the company’s results. However, no prior study has investigated whether and how the demand for information at the country-level and firm-level influences the likelihood of impression management via graphs. The demand for information might, on the one hand, exert a ‘monitoring’ effect reducing the opportunity for self-serving, non-neutral, presentations. On the other hand, it creates more pressure on the preparer to provide a favorable communication of the company’s results. The study has tried to fill this gap, by conducting a longitudinal analysis on the KPI graphs in the annual reports of 200 large European companies.
Were there any specific external events—political, social, or economic—that influenced your decision to pursue this research?
The major economic and social event that influenced our research was the global financial crisis. This event drove our curiosity in investigating the role of the demand for information on impression management during this period of economic and financial instability. The single company’s financial results were not necessarily affected by the crisis. However, its reporting choices were likely to be affected as companies, and their senior managers, were exposed to intense public scrutiny and reputational threats.
In what ways is your research innovative, and how do you think it will impact the field?
We found evidence that a higher demand for information, at both country and firm-levels, serves as an incentive, rather than as a curb, for a selective use of KPI graphs in annual reports. Companies are more likely to use KPI graphs selectively in those contexts where the pressure to perform is higher, i.e. in highly financially developed countries and/or when companies have a higher analyst coverage. Even when unable to affect the most sophisticated users, self-presentations can help preparers and companies to control the impressions of themselves, with self-enhancing and self-confirming messages. The study contributes to the literatures on impression management and visual language in corporate communication by showing that preparers change their communication strategies when the financial community (at both country and firm-levels) exerts a stronger pressure to perform. The study also offers practical implications. We suggest annual report readers to be aware that companies can use graphs selectively without providing a comparable, neutral account of their performance in those contexts where the pressure to perform is higher. We also suggest policymakers a clear guidance on graphs’ usage within corporate reporting.
Stay up-to-date with the latest research by signing up for email alerts through the homepage!