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Is the Optimism in CEO’s Letters to Shareholders Sincere? Impression Management Versus Communicative Action During the Economic Crisis

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Abstract

In this study, we explore the sincerity of the rhetorical tone of 664 annual letters to shareholders (CEO letters). Prior studies adopt Impression Management theory to predict that firms obfuscate failures and emphasize successes to unfairly enhance their image and maintain organizational legitimacy. Yuthas et al. (J Bus Ethics 41:141–157, 2002) challenged such a view, showing that firms reporting earnings surprises engage in ethical discourse with shareholders. We adopt the methodology of Yuthas et al. (J Bus Ethics 41:141–157, 2002) to explore the association between firm performance and the rhetorical features of CEO letters in a large sample of Fortune 500 firms in the wake of the global economic crisis. In contrast to most prior research, we find that optimistic tone is congruent with both past and future performance. We conclude that under tough macroeconomic conditions, incentives to distort public information strategically are low. Rather, firms tend to engage in communicative action aimed at dialoguing with shareholders through sincere disclosure. However, in our conclusions, we warn about the impact of accounting and rhetorical manipulation on the congruence between optimistic tone and financial performance.

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Notes

  1. The significance levels of 2 and 20 % are taken from Yuthas et al. (2002). Optimism is obtained from the combination of sub-variables as follows: (Praise + Satisfaction + Inspiration)—(Blame + Hardship + Denial). Its value tends to vary less than the values of the sub-variables. Hence, the significance level is set to be lower.

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Acknowledgments

The authors would like to acknowledge Amanda Murphy, Philipp Schaberl, and Robert Giacalone for their comments on previous versions of this manuscript.

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Authors and Affiliations

  1. School of Accountancy, Daniels College of Business, University of Denver, 2101 S University Blvd., Suite #360, Denver, CO, 80208, USA

    Lorenzo Patelli

  2. ALTIS-Postgraduate School Business and Society, Università Cattolica del Sacro Cuore, Via San Vittore 18, 20123, Milan, Italy

    Matteo Pedrini

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Correspondence to Lorenzo Patelli.

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Patelli, L., Pedrini, M. Is the Optimism in CEO’s Letters to Shareholders Sincere? Impression Management Versus Communicative Action During the Economic Crisis. J Bus Ethics 124, 19–34 (2014). https://doi.org/10.1007/s10551-013-1855-3

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  • DOI: https://doi.org/10.1007/s10551-013-1855-3

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