Examining the readability of accounting narratives derived from earnings management
Abstract
This study investigates whether language difference affects the readability scores of accounting narratives derived from earnings management practices in 226 companies in the UK, Spain, and Jordan from 2017 to 2021.Our analytical method applies three of the most significant readability measures based on the characteristics of each language, as well as multiple linear and logistic regression models, to demonstrate the impact of language differences on the readability of accounting narratives. The findings indicate that earnings management practices significantly affect the readability of accounting disclosures/narratives, and that past financial profitability moderates this relationship. The implications of the findings reported will help decision-makers better understand the quality and readability of accounting narratives derived from companies’ earnings management. Our analysis also has implications for how stakeholders, accounting policymakers, financial statement auditors, and academics understand the relationship between accounting reporting narratives and earnings management.
First published online 17 January 2024
Keyword : accounting narratives, readability, language variety, earnings management, foreign language effect, earnings forecasts, Fog index, transparency
How to Cite
Gutiérrez-Ponce, H., Chamizo González, J., & Al-Mohareb, M. (2023). Examining the readability of accounting narratives derived from earnings management. Journal of Business Economics and Management, 24(6), 1080–1101. https://doi.org/10.3846/jbem.2023.20447
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Ferris, S. P., Hanousek, J., & Tresl, J. (2021). Corporate profitability and the global persistence of corruption. Journal of Corporate Finance, 66, Article 101855. https://doi.org/10.1016/j.jcorpfin.2020.101855
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Gutiérrez Ponce, H., Chamizo González, J., & Al-Mohareb, M. (2023). Annual reports readability from linguistic and communication perspectives: Systematic literature review. Business and Professional Communication Quarterly, 86(4), 446–497. https://doi.org/10.1177/23294906231151893
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Han, W., & Wu, D. (2022). Internationalisation and earnings management: Evidence from China. Finance Research Letters, 53, 103589. https://doi.org/10.1016/j.frl.2022.103589
Hannah, D. R., Fu, F. Y., & Parent, M. (2022). CARD tricks: Understanding magical processes in organisations. Business Horizons, 65(6), 751–763. https://doi.org/10.1016/j.bushor.2022.08.001
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Hussain, A., & Akbar, M. (2022). Dividend policy and earnings management: Do agency problem and financing constraints matter? Borsa Istanbul Review, 22(5), 839–853. https://doi.org/10.1016/j.bir.2022.05.003
Jones, J. (1991). Earnings management during import relief investigations. Journal of Accounting Research, 29(2), 193–228. https://doi.org/10.2307/2491047
Jose, P. E. (2013). Doing statistical mediation and moderation. Guilford Press.
Karle, H., Schumacher, H., & Staat, C. (2016). Signaling quality with increased incentives. European Economic Review, 85, 8–21. https://doi.org/10.1016/j.euroecorev.2016.02.002
Lara, J. M. G., Osma, B. G., & Penalva, F. (2020). Conditional conservatism and the limits to earnings management. Journal of Accounting and Public Policy, 39(4), Article 106738. https://doi.org/10.1016/j.jaccpubpol.2020.106738
Laskin, A. V. (2018). The narrative strategies of winners and losers: Analysing annual reports of publicly traded corporations. International Journal of Business Communication, 55(3), 338–356. https://doi.org/10.1177/2329488418780221
Le, H. T. T., Vo, X. V., & Vo, T. T. (2021). Accruals quality and the cost of debt: Evidence from Vietnam. International Review of Financial Analysis, 76, Article 101726. https://doi.org/10.1016/j.irfa.2021.101726
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