Impression management observation through textual characteristics in annual reports of South African state-owned entities.

Abstract

The study sought to investigate the existence of impression management strategies in nonfinancial information, also known as narrative disclosures, of the annual report of South African state-owned enterprises (SOEs), with a specific focus on the Board chairperson’s report. These narrative disclosures are normally voluntary and prone to impression management. The focus of the study was to examine whether the SOEs engage in impression management tactics as a way of concealing and withholding information about their poor governance and maladministration. These SOEs are expected to contribute to the economic development of South Africa, yet the downward trend in performance is alarming, which has resulted in this study being undertaken. The study used secondary data in the form of annual reports that were extracted from the websites of sampled SOEs. A quantitative content analysis approach was followed to analyse the data and conclude on the findings, the Mann-Whitney U test tool was used to assess the extent of the variation between profitable and non-profitable SOEs. Signalling theory was used to interpret the results. Textual characteristics of the chairperson’s report linked to impression management tactics were analysed by measuring some key variables, namely length of the chairperson’s report, use of the positive disclosure tone through analysing positive and negative sentiments, use of personal reference words, and use of passive language for profitable and unprofitable SOEs. The results showed that profitable and non-profitable SOEs engage in impression management tactics. Profitable SOEs proved to have 1 page more and average 608 number words more than non-profitable SOEs. However, the difference in the length is considered insignificant. . Profitable SOEs also proved to use 22 more personal references than non-profitable ones, while the difference is considered marginal. The results further revealed that both profitable and non-profitable SOEs use 70% percentage of positive tone and that they used more positive tone than negative tone. Equally, non-profitable SOEs used 3% more passive voice than profitable ones, which difference was however considered marginal. The study contributed towards understanding the use of accounting theories, particularly signalling theory in the corporate disclosures of public sector entities. Moreover, this study aimed to help users of annual reports of SOEs in better understanding impression management tactics that can be engaged in for these entities to stay relevant despite their ongoing dismal performance.