Chairman’s Letter, Impression Management and Governance Mechanisms: The Case of South African Listed Firms

We investigate impression management in the Chairman’s letter, which is one of the unaudited disclosures in financial reports. We further determine firm specific factors that significantly influence impression management. For completeness, we also investigate whether firm governance structures influence impression management. DICTION content analysis software is used to determine impression management measures: optimism, certainty and activity. And the Generalized Method of Moments (GMM) is used to identify factors that influence impression management. Among the three measures of impression management, managers use predominantly optimistic language in the Chairman’s letter to create an impression about their companies. This optimistic language appears to be less in use among poorly performing firms. Among governance measures, board size tend to reduce the use of optimistic language while number of board meetings increase it. Furthermore, firm specific factors and governance measures have significant influence on impression management of well performing firms than they have of poorly performing firms. Therefore, this paper adds to current literature by identifying firm specific factors that influence impression management and the extent to which impression management may be influenced by internal governance structures of firms in emerging markets such as South Africa.