Annual Report Disclosure: Manipulative Silence

Description

High profile international corporate scandals such as Enron and Worldcom and the use of misleading accounting led to a loss of public confidence about corporate reporting. The resulting Sarbanes-Oxley Act of 2002 provided the legislative incentive for management to strengthen corporate disclosures and transparency and improve the communication of information to investors. However, not all companies reveal narrative voluntary disclosures that readers can reasonably expect. Narrative non-disclosures or manipulative silences distort communication because their absence can change how investors form and revise their expectations.No prior study has identified and explained the presence of manipulative silence in annual reporting. This research investigates its incidence and its relationship to operating results, dynamics of the business, prospects and plans for the future and financial review. The research also investigates the association between manipulative silence and corporate governance characteristics (e.g., board independence, management and family ownership, audit committee independence) and other corporate attributes: directional change in profitability, size, audit quality, gearing, share performance, industry association, age, complexity, and bankruptcy risk. The study will reveal the role of manipulative silence in impression management and will have policy implications for mandatory minimum disclosure requirements and in assessing the effectiveness of recent corporate governance reforms.