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Journal of Business Ethics

, Volume 126, Issue 1, pp 3–19 | Cite as

Is Tone at the Top Associated with Financial Reporting Aggressiveness?

  • Lorenzo PatelliEmail author
  • Matteo Pedrini
Article

Abstract

The discussion about the relationship between tone at the top and financial reporting practices has been primarily focused on the oversight role played by the board of directors and other structural elements of corporate governance. Another relevant determinant of tone at the top is the corporate narrative language, since it is a fundamental way in which the chief executive officer (CEO) enacts leadership. In this study, we empirically explore the association between financial reporting aggressiveness and five thematic indicators capturing different traits of ethical leadership from 535 annual letters to shareholders. We find that aggressive financial reporting is positively associated with CEO letters using a language which is resolute, complex, and not engaging. Our empirical findings highlight the importance of examining discretionary corporate narratives for the auditing process and the role of tone at the top in influencing accounting practices.

Keywords

Financial reporting Accounting restatements Tone at the top Ethical leadership DICTION 

Notes

Acknowledgments

The authors would like to acknowledge Amanda Murphy, Hugh Grove, two anonymous reviewers, the discussant, and participants of the 2013 Accounting Ethics Symposium organized by the Centre for Accounting Ethics of the University of Waterloo for their helpful comments on previous versions of this manuscript.

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© Springer Science+Business Media Dordrecht 2013

Authors and Affiliations

  1. 1.School of Accountancy, Daniels College of BusinessUniversity of DenverDenverUSA
  2. 2.ALTIS-Postgraduate School Business and SocietyUniversità Cattolica del Sacro CuoreMilanItaly

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