The effect of institutional setting on attributional content in management commentary reports

We study the effect of expected regulatory and litigation costs embedded in a country’s institutional environment on the explanatory content of management commentary reports. Using a behavioural accountability lens, we argue that regulatory control and expected litigation risk affect the attributional framing of financial performance. We also investigate whether differential attributional properties have economic relevance by considering the relationship between content profiles and analyst forecast dispersion. We include 173 listed firms from four countries (USA, Canada, United Kingdom and Australia). Consistent with behavioural accountability theory, we find significant country differences in dominant attributional profiles. Compared to their counterparts in the UK and Australia, firms from the USA and Canada are generally less assertive and less defensive in explicit causal framing. They are also more extensive and formal in their explanations, relying more heavily on accounting-technical language. These tendencies are more pronounced in the USA, where the aggregate of private and public enforcement is greatest. Moreover, we establish that causal defensiveness and attributional extensiveness are negatively associated with analyst forecast dispersion, while level of causal assertiveness and formality are not.