Management’s choice of tone in letters to shareholders: sincerity, bias and incentives

Abstract

El objetivo de este artículo es identificar los factores que impulsan las decisiones de los directivos en materia de información en un entorno caracterizado por la concentración de la propiedad y la escasa aplicación de la ley. Investigaciones anteriores indican que el tono de la carta a los accionistas está correlacionado con los resultados. Sin embargo, el tono puede estar sesgado hacia lo positivo cuando una empresa es muy sensible a los incentivos del mercado de valores o está controlada por inversores mayoritarios. El sesgo puede reducirse gracias a las actividades de supervisión de los inversores institucionales en las empresas de capital cerrado. El estudio tiene dos implicaciones importantes. En primer lugar, cuando los directivos sesgan el texto, pierden la capacidad de comunicar noticias positivas sobre su empresa. En el marco de las expectativas racionales, los inversores pueden detectar el sesgo basándose en los incentivos situacionales conocidos y desestimar la información sesgada. En segundo lugar, los resultados sugieren que los directivos manipulan el tono estratégicamente, y no de forma inconsciente, para satisfacer las necesidades de los principales grupos de accionistas. 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.

Are institutional investors “in love” with the sustainable development goals? Understanding the idyll in the case of governments and pension funds

“…In this sense, as Yamane and Kaneko (2021) showed, raising stakeholder awareness of the SDGs leads private companies to engage in SDG implementation. In particular, due to the increase in the institutional investors' participation in listed companies' ownership, which ascends to more than 40% (Organisation for Economic Co‐operation and Development ‐ OECD, 2020), they significantly influence corporate strategies, including SDG engagement and reporting (Calza et al, 2016; García‐Sánchez, Rodríguez‐Ariza, Aibar‐Guzmán, & Aibar‐Guzmán, 2020; Hadro et al, 2021; Jonsdottir et al, 2021; Melón‐Izco et al, 2021).…”

“…In this sense, as Yamane and Kaneko (2021) showed, raising stakeholder awareness of the SDGs leads private companies to engage in SDG implementation. In particular, due to the increase in the institutional investors' participation in listed companies' ownership, which ascends to more than 40% (Organisation for Economic Co-operation and Development -OECD, 2020), they significantly influence corporate strategies, including SDG engagement and reporting (Calza et al, 2016;Hadro et al, 2021;Jonsdottir et al, 2021;Mel on-Izco et al, 2021). Indeed, introduced in April 2006, the United Nations Principles for Responsible Investment (UN PRI) establish commitments to incorporate social, environmental, and governance criteria into investment decisions (Cohen et al, 2011), encouraging Socially Responsible Investment (SRI) and investors' activism to promote sustainability in the companies in which they invest (García-Sánchez, Aibar-Guzmán, & Aibar-Guzmán, 2020).…”

Impression management in bankruptcy: An analysis of the narratives in listed companies

“…The existing literature has found that corporate disclosure is overwhelmingly positive (Gibbins et al, 1990;Hadro et al, 2021;Hildebrandt & Snyder, 1981;Moreno, 2019). This consistent pattern could result in the tone of management reports losing any potential significance.…”

Circular Economy Projects and Firm Disclosures in an Encouraging Institutional Environment

“…Information for the analysis and identification of the key issues was obtained through content and textual analysis [67,68]. Specifically, the information on the CE was all first disclosed by the companies on their corporate websites and is verbatim.…”