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Tone management examination in the CEO statements of the top 40 JSE Listed companies.

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The business sector has recently been rocked by several accounting scandals. Unfortunately, South Africa has not been immune to this trend of fraudulent financial reporting, and investors have suffered financial losses when these businesses eventually fail, this is why particular attention is now on the tactics used by company leaders in the narrative disclosures. This study examined tone management in the Chief Executive Officer (CEO) statements using the JSE's top 40 businesses. The primary objectives were to analyse the impact of financial performance on the normal tone of CEO statements and to investigate the influence of abnormal accruals on the abnormal tone used in CEO statements. The study used quantile regression analysis and a generalised linear regression model to analyse the impact of financial performance on normal tone and to examine the influence of abnormal accruals on abnormal tone. CEO statements from the JSE Top 40 public businesses were examined using content analysis. Findings show a positive impact of financial performance on the normal tone of CEO statements. This indicates that financial performance and normal tone move in the same direction, as financial performance improves, a positive tone in CEO statements also increases. This further means that moderately and extremely profitable companies use a more positive tone. Results also show a negative influence of anomalous accruals on irregular tone. Meaning that anomalous accruals and irregular tone move in different directions, when abnormal accruals increase, abnormal tone decreases. Additionally, this suggests that abnormal accruals and abnormal tone do not co-occur and that companies with abnormal accruals do not conceal them using abnormal tone. It is recommended that annual financial statements users should carefully scrutinise the tone used in CEO statements, to identify whether or not it is aimed at concealing poor performance or motivated by good performance. The amount of flexibility and judgment given to preparers of financial statements should be reduced to lessen the use of earnings management practices. The study contributes to the conversation about the company's financial reporting methods applied by public businesses listed in the JSE as well as the discussions around earnings management practices.


Masters Degree. University of KwaZulu-Natal, Durban.