Financial Graphs and Narratives

Posted by Melda Research on February 20th, 2019

According to Beattie & Jones (1997), agency refers to the capacity of an individual or organization to act in any given environment. The agency theory impacts the decisions made by the management of an organization (Beattie & Jones, 1997). The management of an organization creates graphs representing its financial reports with greater expectations of positive results. The management of an organization can tamper with the financial graphs such that the physical representation of the numbers does not match with the underlying numbers (Beattie & Jones, 1997). The impression management created through the use of obscure financial graphs clouds the ability of all stakeholders to make financial decisions (Beattie & Jones, 1997). The agency issue occurs when the stakeholders make inappropriate financial decisions related to the organization. For example, more people will be inclined to invest in the organization as shareholders if the management tampers with the financial graphs and illustrates an upward trend in growth and profits.
Signaling theory
Human beings are social beings that live in groups and interact with one another. There is an increase of social relations taking place in the field of mediated communication. The social dynamics in this ubiquitous world are changing it from an era of legal and formal based transactions and operations to sustainable and responsible transactions (Beattie & Jones, 1997). Similarly, the role of the corporate annual report is transforming from a primarily legal and formal document to a major public relations document (Beattie& Jones, 1997). Many stakeholders are prioritizing issues related to public relations such as corporate social responsibility or the honesty of an organization. The management of an organization gets inclined to produce honest financial graphs to appeal to the moral side of its stakeholders (Beattie & Jones, 1997). This tactic is more appropriate for successful organizations that seek to communicate their superiority in the market (Beattie & Jones, 1997).
Legitimacy theory
The legitimacy theory refers to the perception that the actions of the organization are desirable or appropriate with some socially constructed system (Beattie & Jones, 2008). The issue revolves around the thought of legitimacy theory providing any real insight on the voluntary disclosures of organizations through financial graphs. The disclosure tone used by the management of an organization varies with the legitimacy situation (Beattie & Jones, 2008). The management is bound to use proper financial graphs to reveal its intentions to the public regarding following the social systems constructed by the society. When the organization is facing legitimacy repairing process, the management uses obfuscating financial graph disclosure techniques (Beattie & Jones, 2008). The fear of experiencing consequences because of the organization’s failure to follow the social structures induces the management to disclose the appropriate financial graphs regardless of the interests of the organization.
Stakeholder
Organizations will deploy multiple facets for different stakeholders to access resources. Therefore, the management of an organization uses different tactics when disclosing the financial graphs (Beattie & Jones, 2008). The management needs the investment of the stakeholders to run normal operations and also for growth (Beattie & Jones, 2008). The interests of an organization encourage its management to use obscure financial graphs that cloud the judgment of the stakeholders when making financial decisions related to the organization. The purpose of the financial graphs is to impress the stakeholders to make financial decisions in favor of the organizations interests (Beattie & Jones, 2008).
Institutional theory
The institutional theory proposes that organizations wishing to gain resources can achieve legitimacy by using the financial graphs to place themselves strategically at the opposition that conforms to the wider social structure (Beattie & Jones, 2008). The management meets the expectations, interests, and agendas of potential stakeholders by disclosing these financial graphs (Beattie & Jones, 2008).
Question. 2 What are the seven common impression management strategies that prepare can do:
Reading ease manipulation
The management of an organization uses this strategy to obfuscate bad news by manipulating the financial graphs disclosed to the stakeholders. The management discloses sophisticated financial graphs with intricate designs to conceal unfavorable trends in the financial reports illustrated by the graphs. The management also manipulates the readability of its financial graphs to hide unfavorable trends. They use difficult graphs for unfavorable trends and easy graphs for favorable trends.
Rhetorical Manipulation
Rhetorical manipulation is another conciliatory strategy used by the management of organizations to cloud the judgment of stakeholders (Tufte & Weise Moeller, 1997). The management of organizations will use the persuasive language in rhetorical manipulation as a proxy for obfuscation (Tufte & Weise Moeller, 1997). Organizations are not willing to display unfavorable trends to the stakeholders for fear of losing investors. Managers conceal dismissive organizational outcomes using rhetorical tactics like financial graphs illustrating prospects. The message managers relay to the clients differs from successful years to unsuccessful years (Tufte & Weise Moeller, 1997). The management argues that indirectness of financial graphs on mixed-outcomes is not impression management rather increased the complexity of the subject (Tufte & Weise Moeller, 1997).
Thematic manipulation
Thematic manipulation is another conciliatory impression management strategy used by the management (Tufte & Weise Moeller, 1997). The managers conceal bad news by not reporting it as good news. The managers use positive curves on the charts to present the organization and its financial performance in the best possible light (Tufte & Weise Moeller, 1997). The management assumes that the use of these positive connotations in the financial graphs is not as an impression management strategy. They assume it is a means of overcoming information asymmetries by providing stakeholders with incremental information about projected organizational performance (Tufte & Weise Moeller, 1997).
Visual and structural effects
The management of an organization can use the perceptions of firm performance and prospects to conceal unfavorable trends (Tufte & Weise Moeller, 1997). The management manipulates the presentation of the financial graphs to cloud the perception of the stakeholders. The management can apply repetition, reinforcement, visual emphasis or ordering during the presentation (Tufte & Weise Moeller, 1997). Repetition refers to repeated illustration of an item through the financial graphs. Reinforcement refers to use of a qualifier to emphasize information. Visual emphasis involves the use of visual effects like color in the graphs to draw the attention of the stakeholders. Ordering directs the stakeholders to the specific information an organization to favorable trend in the curves and lines. These strategies allow the management to relay specific portions of information to the stakeholders (Tufte & Weise Moeller, 1997).
Performance comparisons
The management introduces positive favoritism by choosing performance comparisons that enable them to display the organization's current performance in the best way (Clatworthy & Jones, 2003). The management can compare the financial graphs of the lowest performance with the current performance to portray the annual increase rate (Clatworthy & Jones, 2003). The management can also compare the performance graphs for different timelines or with other organizations especially if they intend to conceal poor performance (Clatworthy & Jones, 2003).
Choice of earnings numbers
This disclosure strategy chooses specific earnings numbers to display in the financial graphs (Clatworthy & Jones, 2003). There are several reasons why the management of an organization can deploy such strategies. The management of an organization gets inclined to provide users with more accurate, useful information (Clatworthy & Jones, 2003). The management also uses this strategy to display an organization as profitable. The management chooses the best- earning numbers and expresses them in the form of graphs to impress the stakeholders (Clatworthy & Jones, 2003).
Attribution of organization outcomes
Unlike other strategies, this disclosure strategy is an attribution strategy of the organizational outcomes (Tufte & Weise Moeller, 1997). The management proceeds in an expedient way, featuring positive outcomes to entitlements and negative outcomes to excuses. Rather, maintaining consistency in the financial graphs performance attributions overcome information asymmetries by providing additional explanations. The additional explanations assist investors interpret managerial predictions by identifying additional causes that investors should consider when estimating earnings (Tufte & Weise Moeller, 1997).

Reference
Beattie, V., & Jones, M (1997). A Comparitive Study of the Use of Financial Graphs in the Corporate Annual Reports of Major US and UK Companies.Journal of International Financial Management & Accounting, 8(1), 33-68.
Beattie, V., & Jones, M., (2008). Corporate Reporting Using a Review and Synthesis. Journal of Accounting Literature, vol. 27, page 71-110
Clatworthy, M., & Jones, M. J. (2003). Financial reporting of good news and bad news: evidence from accounting narratives. Accounting and business research, 33(3), 171-185.
Tufte, E. R., & Weise Moeller, E. (1997). Visual explanations: images and quantities, evidence and narrative (Vol. 36). Cheshire, CT: Graphics Press.

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