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Linking Financial Performance with CEO Statements: Testing Impression Management Theory

Author

Listed:
  • Lonwabo Mlawu

    (School of Accounting, Economics and Finance, University of KwaZulu-Natal, Westville Campus, University Road, Westville, Private Bag X54001, Durban 4000, South Africa)

  • Frank Ranganai Matenda

    (School of Accounting, Economics and Finance, University of KwaZulu-Natal, Westville Campus, University Road, Westville, Private Bag X54001, Durban 4000, South Africa)

  • Mabutho Sibanda

    (School of Accounting, Economics and Finance, University of KwaZulu-Natal, Westville Campus, University Road, Westville, Private Bag X54001, Durban 4000, South Africa)

Abstract

The purpose of this study was to analyze the impact of financial performance on the tone used in the chief executive officer (CEO) statements of South Africa’s (SA) top 40 JSE-listed companies in the 2021 financial year. This study implements the quantile regression analysis and the generalized linear regression model. To perform this assessment, the integrated annual reports (IARs) containing the CEO and annual financial statements for the top 40 JSE-listed companies were extracted from their official websites. The tone level in CEO statements was determined using Azure Machine Learning (AML). This study’s findings reveal that financial performance has a positive impact on the tone of CEO statements of the top 40 JSE-listed companies, i.e., as financial performance improves, the positive tone in CEO statements also increases. Additionally, results revealed that moderately and extremely profitable companies use a more positive tone. It is recommended that users of financial statements should carefully scrutinize the tone used in CEO statements, to identify whether or not it is aimed at concealing poor performance or motivated by good performance. The study contributes to the limited tone-management literature in developing countries and in SA in particular. The computerized techniques offered by both the Statistical Package for Social Sciences (SPSS) and AML secures the validity and reliability of the content analysis, therefore, the study’s shortcomings do not compromise the generalizability of the results. The study’s sample truly represents all of the JSE’s listed companies.

Suggested Citation

  • Lonwabo Mlawu & Frank Ranganai Matenda & Mabutho Sibanda, 2023. "Linking Financial Performance with CEO Statements: Testing Impression Management Theory," Risks, MDPI, vol. 11(3), pages 1-16, March.
    • Handle: RePEc:gam:jrisks:v:11:y:2023:i:3:p:55-:d:1090946
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    References listed on IDEAS

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    5. Rahman, Sheehan, 2019. "Discretionary tone, annual earnings and market returns: Evidence from UK Interim Management Statements," International Review of Financial Analysis, Elsevier, vol. 65(C).
    6. Feng Li, 2010. "The Information Content of Forward‐Looking Statements in Corporate Filings—A Naïve Bayesian Machine Learning Approach," Journal of Accounting Research, Wiley Blackwell, vol. 48(5), pages 1049-1102, December.
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