Publications

Recent scandals and corporate failures have shaken the confidence of investors in financial reporting. Thus, investors and other stakeholders called for greater transparency by better information disclosure via annual reports. Due to the fact that the annual report, especially the narrative section, stands for an essential part of the information used by investors and other stakeholders, it is vital that this information reflects a true and fair view of the business. However, literatures have indicated that the information disclosed in those sections was altered in a way to affect readers’ perceptions and their investment decisions, specifically used for impression management purposes. Recently, impression management in corporate reporting context has become the focus of interest. This, however, has not been translated into empirical research that investigates impression management in annual reports. This research addresses this gap through examining discretionary narrative disclosure strategies (DNDS) of impression management in selected countries of MENA region. The key objectives of this research are to determine the extent of existence of DNDS of impression management, identify whether DNDS of impression management differ across countries, and investigate the determinants that influence the existence of DNDS of impression management in the narrative sections— chairmen’s letters- of the annual reports of major MENA banks. This research is based on a content analysis of 200 annual reports of 50 major banks in five countries Egypt, Jordan, Lebanon, Saudi Arabia, and United Arab of Emirates for 2011-2014 inclusive. The results indicate that the highest proportion of banks using very difficult language; placing good news in the most emphasized sections; selecting previous-period comparative benchmark; and attributing the responsibility of good news to internal factors and bad news to external factors. Also, the results indicate that narratives differed considerably across countries in terms of readability level; emphasis of good news; location of good news; selection of positive benchmark; amount of net profit disclosed; and performance attribution. Further, the results indicate that profitability influence the extent of implementation of reading ease manipulation; the existence of performance comparisons; and the existence of choice of earnings number. Likewise, the results indicate that size influence the extent of implementation of visual/structural manipulation and the existence of choice of earnings number. Overall, the results indicate that banks in MENA region produce narratives – especially the chairmen’s letter the discretionary disclosure section- to influence the perception of their stakeholders rather than to display the narratives in accordance with the ―true and fair view‖ principle of accounting. Therefore, this research recommends regulators for more actively intervening to ensure that the voluntary status of the annual reports is more closely scrutinized by auditors in order to reduce the negative effects of using DNDS of impression management.