Abstract
The objective of this paper is to analyse the graph use in annual reports of Central and Eastern European (CEE) banks during 2006–2011 and to determine the extent of impression management strategies employed. The results reveal distinct differences in CEE banks’ graph use compared to other types of companies covered in previous studies. These include lower levels of graph use, differences in identified key financial variables (KFVs), and more extensive use of activity and macroeconomic indicator graphs. There is quite strong support for impression management in banks’ graph use in the context of selectivity. Weaker support was found for the existence of favourable measurement distortions. Still, compared to previous research, weaker links exist between KFV graph use and banks’ profit performance. Although the proportions of materially distorted graphs remain lower than reported in previous studies, the results do indicate that annual report users should pay more attention to sudden disappearance of certain graphs and cross-check graphed KFVs with numerical data presented in audited financial reports.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
2008 survey by Abt SRBI (http://www.sec.gov/pdf/disclosuredocs.pdf) conducted in US indicates that only 13 % of investors obtain company’s annual report and from those almost half rarely, very rarely or never read these reports. The main reason for not reading was mainly that these were considered hard to understand or too long. Similarly, 2011 BoX IR’s Financial Market survey (http://www.slideshare.net/BoxIR/financial-market-survey-2011-summary) conducted in Sweden indicates that less than half of the investors considered annual reports important or very important.
- 2.
2008 survey by Abt SRBI http://www.sec.gov/pdf/disclosuredocs.pdf
- 3.
Lithuanian bank Bankas Snoras went bankrupt and, therefore, no 2011 annual report for that bank has been issued.
- 4.
Similarly to many previous papers the measurement distortions on pie charts are not considered as these require slightly different measurement distortion detection approach (see Beattie and Jones 1994). This indicates that the number of KFV graphs available for GDI calculation is smaller than the total count of KFV graphs.
- 5.
Obligations group has slightly higher count of graphs than profit, however, the former topic includes several different subcategories which are significantly more heterogeneous. Therefore, obligations are not included amongst KFVs in this paper.
References
Adelberg, A. H. (1979). Narrative disclosures contained in financial reports: Means of communication or manipulation? Accounting and Business Research, 9(35), 179–190.
Bannister, J. W., & Newman, H. A. (2006). Disclosure biases in proxy performance graphs: The influence of performance and compensation committee composition. Review of Accounting and Finance, 5(1), 30–44.
Beattie, V., Dhanani, A., & Jones, M. J. (2008). Investigating presentational change in U.K. annual reports. Journal of Business Communication, 45(2), 181–222.
Beattie, V., & Jones, M. J. (1992). The use and abuse of graphs in annual reports: Theoretical framework and empirical study. Accounting and Business Research, 22(88), 291–303.
Beattie, V., & Jones, M. J. (1993). Information design and manipulation: Financial graphs in corporate annual reports. Information Design Journal, 7(3), 211–226.
Beattie, V., & Jones, M. J. (1994). An empirical study of graphical format choices in charity annual reports. Financial Accountability and Management, 10(3), 215–236.
Beattie, V., & Jones, M. J. (1996). Financial graphs in corporate annual reports: A review of practice in six countries (Research Report). London: Institute of Chartered Accountants in England and Wales.
Beattie, V., & Jones, M. J. (1997). A comparative study of the use of financial graphs in the corporate annual reports of major U.S. and U.K. companies. Journal of International Financial Management and Accounting, 8(1), 33–68.
Beattie, V., & Jones, M. J. (1998). Graphical reporting choices: Communication or manipulation (Research Report 56). Chartered Association of Certified Accountants, Certified Accountants Educational Trust.
Beattie, V., & Jones, M. J. (1999). Australian financial graphs: An empirical study. Abacus, 35(1), 46–76.
Beattie, V., & Jones, M. J. (2000). Changing graph use in corporate annual reports: A time-series analysis. Contemporary Accounting Research, 17(2), 213–226.
Beattie, V., & Jones, M. J. (2001). A six-country comparison of the use of graphs in annual reports. International Journal of Accounting, 36(2), 195–222.
Beattie, V., & Jones, M. J. (2002). Measurement distortion of graphs in corporate reports: An experimental study. Accounting, Auditing and Accountability Journal, 15(4), 546–564.
Cho, C. H., Michelon, G., & Patten, D. M. (2012). Enhancement and obfuscation through the use of graphs in sustainability reports: An international comparison. Sustainability Accounting, Management and Policy Journal, 3(1), 74–88.
CICA. (1993). Using ratios and graphics in financial reporting (Canadian Institute of Chartered Accountants Research Report, pp. 1–222).
Clatworthy, M., & Jones, M. J. (2001). The effect of thematic structure on the variability of annual report readability. Accounting, Auditing and Accountability Journal, 14(3), 311–326.
Cleveland, W. S., & McGill, R. (1987). Graphical perception: The visual decoding of quantitative information on graphical displays of data. Journal of the Royal Statistical Society. Series A (General), 150(3), 192–229.
Courtis, J. K. (1997). Corporate annual report graphical communication in Hong Kong: Effective or misleading? Journal of Business Communication, 34(3), 269–288.
Dilla, W. N., & Janvrin, D. J. (2010). Voluntary disclosure in annual reports: The Association between magnitude and direction of change in corporate financial performance and graph use. Accounting Horizons, 24(2), 257–278.
Ditlevsen, M. G. (2012). Revealing corporate identities in annual reports. Corporate Communications: An International Journal, 17(3), 370–393.
Frownfelter, C. A., & Fulkerson, C. L. (1998). Linking the incidence and quality of graphics in annual reports to corporate performance: An international comparison. Advances in Accounting Information Systems, 6, 129–151.
Frownfelter-Lohrke, C., & Fulkerson, C. L. (2001). The incidence and quality of graphics in annual reports: An international comparison. Journal of Business Communication, 38(3), 337–358.
Gibbins, M., Richardson, A., & Waterhouse, J. (1990). The management of corporate financial disclosure: Opportunism, ritualism, policies, and processes. Journal of Accounting Research, 28(1), 121–143.
Graves, O. F., Flesher, D. L., & Jordan, R. E. (1996). Pictures and the bottom line: The television epistemology of U.S. annual reports. Accounting, Organizations and Society, 21(1), 57–88.
Green, P., Kirk, R., & Rankin, C. (1992, November). Graphs: The use and abuse. Certified Accountant, p. 34.
Hines, R. D. (1982). The usefulness of annual reports: The anomaly between the efficient markets hypothesis and shareholder surveys. Accounting and Business Research, 12(48), 296–309.
Hooghimestra, R. (2010). Letters to the shareholders: A content analysis comparison of letters written by CEOs in the United States and Japan. International Journal of Accounting, 45(3), 275–300.
Jones, M. J. (2011). The nature, use and impression management of graphs in social and environmental accounting. Accounting Forum, 35(2), 75–89.
Kosslyn, S. M. (1985). Graphics and human information processing: A review of five books. Journal of the American Statistical Association, 80(391), 499–512.
Kosslyn, S. M. (1989). Understanding charts and graphs. Applied Cognitive Psychology, 3(3), 185–226.
Laidroo, L. (2009). Association between ownership structure and public announcements’ disclosure quality. Corporate Governance: An International Review, 17(1), 13–34.
Laidroo, L., & Ööbik, U. (2014). Banks’ CSR disclosures—Headquarters versus subsidiaries. Baltic Journal of Management, 9(1), 47–70.
Leary, M. R., & Kowalski, R. M. (1990). Impression management: A literature review and two-component model. Psychological Bulletin, 107(1), 34–47.
Lee, T. (1994). The changing form of the corporate annual report. Accounting Historians Journal, 21(1), 215–232.
Mather, D., Mather, P., & Ramsay, A. (2005). An investigation into the measurement of graph distortion in financial reports. Accounting and Business Research, 35(2), 147–160.
Mather, P., Ramsay, A., & Serry, A. (1996). The use and representational faithfulness of graphs in annual reports: Australian evidence. Australian Accounting Review, 6(12), 56–63.
Mather, P., Ramsay, A., & Steen, A. (2000). The use and representational faithfulness of graphs in Australian IPO prospectuses. Accounting, Auditing and Accountability Journal, 13(1), 65–83.
McKinstry, S. (1996). Designing the annual reports of Burton Plc from 1930 to 1994. Accounting Organizations and Society, 21(1), 89–111.
Merkl-Davies, D. M., & Brennan, N. M. (2007). Discretionary disclosure strategies in corporate narratives: Incremental information or impression management. Journal of Accounting Literature, 26, 116–196.
Merkl-Davies, D. M., Brennan, N. M., & McLeay, S. J. (2011). Impression management and retrospective sense-making in corporate narratives. Accounting, Auditing and Accountability Journal, 24(3), 315–344.
Muiño, F., & Trombetta, M. (2009). Does graph disclosure bias reduce the cost of equity capital. Accounting and Business Research, 39(2), 83–102.
Revsine, L. (1991). The selective financial misrepresentation hypothesis. Accounting Horizons, 5(4), 16–27.
Schipper, K. (1989). Commentary on earnings management. Accounting Horizons, 3, 91–102.
Steinbart, P. J. (1989). The auditor’s responsibility for the accuracy of graphs in annual reports: Some evidence of the need for additional guidance. Accounting Horizons, 3(3), 60–70.
Tadesse, S. (2006). The economic value of regulated disclosure: Evidence from the banking sector (William Davidson Institute Working Paper No. 875).
Taylor, B. G., & Anderson, L. K. (1986). Misleading graphs: Guidelines for the accountant. Journal of Accountancy, 162(4), 126–135.
Tufte, E. R. (1983). The visual display of qualitative information. Cheshire, CT: Graphic Press.
Tversky, A., & Khaneman, D. (1981). The framing of decisions and the psychology of choice. Science, 211(4481), 453–458.
Uyar, A. (2011). Firm characteristics and voluntary disclosure of graphs in annual reports of Turkish listed companies. African Journal of Business Management, 5(17), 7651–7657.
Vergoossen, R. G. A. (1993). The use and perceived importance of annual reports by investment analysts in the Netherlands. European Accounting Review, 2(2), 219–243.
Verrecchia, R. E. (2001). Essays on disclosure. Journal of Accounting and Economics, 32(1–3), 97–180.
Vessey, I., & Galletta, D. (1991). Cognitive fit: An empirical study of information acquisition. Information Systems Research, 2(1), 63–84.
Watts, R. L., & Zimmermann, J. L. (1978). Towards a positive theory of the determination of accounting standards. Accounting Review, 53(1), 112–134.
Watts, R. L., & Zimmermann, J. L. (1990). Positive accounting theory: A ten year perspective. Accounting Review, 65(1), 131–156.
Acknowledgements
The authors are grateful for the financial support provided by the Estonian Ministry of Education and Research to projects SF0140059s12 “Economic Fluctuations in Central and Eastern Europe: Causes, Consequences and Challenges”. This paper represents the work conducted in connection with this project. The funding providers had no role in the research process from study design to submission.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Appendix
Appendix
Overview of empirical papers on graph disclosure
Reference | Medium | Region | Period | No. of companies |
|---|---|---|---|---|
Steinbart (1989) | Annual report | US | 1986 | 319 |
Beattie and Jones (1992) | Annual report | UK | 1989 | 240 |
Green et al. (1992) | Annual report | Ireland | 1989 | 240 |
Beattie and Jones (1993) | Annual report | UK | 1989 | 240 |
CICA (1993) | Annual report | Canada | 1991 | 200 |
Beattie and Jones (1994) | Charity report | UK | 1990 | 47 |
Mather et al. (1996) | Annual report | Australia | 1991/1992 | 187 |
Beattie and Jones (1996) | Annual report | Australia, France, Germany, Netherlands, UK, US | 1991/1992 | 300 |
Beattie and Jones (1997) | Annual report | UK, US | 1990 | 176 |
Courtis (1997) | Annual report | Hong Kong | 1992–1995 | 116–140 |
Beattie and Jones (1998) | Annual report | UK | 1988–1992 | 137 |
Frownfelter and Fulkerson (1998) | Annual report | 12 countries | 1984–1994 | 74 |
Beattie and Jones (1999) | Annual report | Australia | 1991 | 89 |
Beattie and Jones (2000) | Annual report | UK | 1988–1992 | 137 |
Mather et al. (2000) | IPO prospectus | Australia | Pre 1991 and post 1991 | N/A |
Beattie and Jones (2001) | Annual report | Australia, France, Germany, Netherlands, UK, US | 1992 | 300 |
Frownfelter-Lohrke and Fulkerson (2001) | Annual report | 12 countries | 1984–1994 | 74 |
Bannister and Newman (2006) | Proxy statement | Global | 1993 | 141 |
Beattie et al. (2008) | Annual report | UK | 1965, 1978, 1988, 1989, 2004 | 25–240 |
Muiño and Trombetta (2009) | Annual report | Spain | 1996–2002 | 67 |
Dilla and Janvrin (2010) | Annual report | US | 1999–2005 | 184 |
Jones (2011) | Social and environmental report | UK | 2005 | 63 |
Uyar (2011) | Annual report | Turkey | 2006 | 96 |
Cho et al. (2012) | Corporate sustainability report | UK, US, France, Germany, Italy, Spain | 2006 | 120 |
Rights and permissions
Copyright information
© 2016 Springer International Publishing Switzerland
About this paper
Cite this paper
Laidroo, L., Tamme, N. (2016). Graphs in Annual Reports of Banks: Trustworthy or Not?. In: Bilgin, M., Danis, H., Demir, E., Can, U. (eds) Business Challenges in the Changing Economic Landscape - Vol. 1. Eurasian Studies in Business and Economics, vol 2/1. Springer, Cham. https://doi.org/10.1007/978-3-319-22596-8_10
Download citation
DOI: https://doi.org/10.1007/978-3-319-22596-8_10
Publisher Name: Springer, Cham
Print ISBN: 978-3-319-22595-1
Online ISBN: 978-3-319-22596-8
eBook Packages: Economics and FinanceEconomics and Finance (R0)