The British Accounting Review 46 (2014) 111e134
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The British Accounting Review
journal homepage: www.elsevier.com/locate/bar
Accounting narratives and the narrative turn in accounting
research: Issues, theory, methodology, methods and a
research framework
Vivien Beattie*
Lancaster University Management School, Lancaster LA1 4YX, UK
a r t i c l e i n f o
a b s t r a c t
Article history:
Received 18 November 2013
Accepted 6 January 2014
This plenary address paper traces the development of accounting narratives in external
reporting practice and research, focussing on corporate-sourced financial communications
to shareholders and analysts. It is written from the personal perspective of a researcher
who began in the positivist tradition of disclosure research and is increasingly engaging
with the more interpretive/critical tradition of socially-constructed narratives. Whereas
early accounting narratives research existed at the margins, modern content-analytic work
on disclosures rose to a position of prominence, alongside the rise of non-financial information in the practice domain. In recent years, large-scale linguistic studies have
entered the mainstream positivist North American literature, supported by computerised
natural language processing. Outside this community, accounting research has witnessed a
‘narrative turn’, similar to many other social science disciplines, marking a shift away from
realism and positivism. This paper argues for the importance of both lines of research.
Participants’ actions in relation to accounting narratives may be understood in terms of,
inter alia, both economic explanations based on utility maximisation and behavioural
explanations based on psychology and the embeddedness of narrative in social practice. In
terms of methodology and methods, the weakening of the deep-surface divide is exemplified by the common combination of corpus linguistics approaches with (critical)
discourse analysis in other disciplines. Based on a discussion of key issues, theory, methodology and methods, a framework for thinking about research in accounting narratives is
offered. The challenge is to better understand the role of narratives in the increasingly rich,
complex information environment of external reporting.
Ó 2014 Elsevier Ltd. All rights reserved.
Keywords:
Accounting narratives
Content analysis
Corpus linguistics
Discourse analysis
Storytelling
Sensemaking
1. Introduction
It was a great honour for me to receive the 2012 BAFA Distinguished Academic Award, becoming the 18th recipient,
especially as I am very conscious that there are many deserving individuals in our community of scholars. Delivering a plenary
address at the following year’s conference is the main task associated with the award. Following the tradition set by many
* Tel.: þ44 (0) 1524 594334.
E-mail address: v.beattie@lancaster.ac.uk.
http://dx.doi.org/10.1016/j.bar.2014.05.001
0890-8389/Ó 2014 Elsevier Ltd. All rights reserved.
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V. Beattie / The British Accounting Review 46 (2014) 111e134
previous recipients (e.g. David Otley, Andy Stark and Bob Scapens), I am taking the opportunity today to review and reflect
upon developments in an area of research of particular interest to me e accounting narratives.1 In the title I use this term in a
broad sense to include research in both the interpretive/critical European and positivist North American traditions, discussing
the potential for linkage between them. Given the breadth of research in this area, the paper offers a selective overview, rather
than a systematic and comprehensive review. The focus is on accounting narratives produced by companies and aimed at
shareholders, although those produced by other market participants will be considered.
The financial reporting environment is increasingly rich and complex. There are many parties involved in the information
supply chain (preparers, auditors, sophisticated analyst intermediaries, informed and uniformed investors, the media and
business press) (for a recent review of the financial reporting environment see Beyer, Cohen, Lys, & Walther, 2010; the discussion by Berger, 2011). The behaviour of human actors in this environment is similarly complex, as multiple motivations of
both an economic and social nature can co-exist (Festré, 2010). The literature on accounting narratives (European tradition) is
related to the literature on voluntary disclosure (North American tradition). The different terminology (disclosure versus
narrative) in part signals quite fundamental differences in researchers’ philosophical beliefs, i.e. in the theories and methodologies that they use.2 It has been shown that accounting is a local rather than a global discipline,3with two competing
research élites: a powerful, and dominant US élite centred around The Accounting Review, the Journal of Accounting Research
and the Journal of Accounting and Economics and an emerging, mostly European élite centred around Accounting, Organizations
and Society (Ballas & Theoharakis, 2003; Lukka & Kasanen, 1996). These academic ‘tribes’ occupy distinct ‘territories’ within
the accounting discipline (Becher & Trowler, 2001), adopting research approaches with distinctive philosophical assumptions.
At the outset, it is worth making clear how various terms are to be used in this paper. ‘Disclosure’ research draws upon
economic information asymmetry arguments and agency theory, dealing with objective economic ‘facts’. A strong stream of
analytical work continues as more aspects are considered (reviewed in Verrecchia, 2001). Empirical work is largely ‘archival’4
(for a review, see Healy & Palepu, 2001 and the discussion by Core, 2001). ‘What’ is disclosed is viewed as information. It may be
quantitative and numerical in nature (as in a point estimate management earnings forecast or a non-financial key performance
indicator) or comprise qualitative text. Disclosure is viewed as a rational trade-off between costs and benefits e a strategic
managerial decision involving complex interdependencies. Information asymmetry reduction sits at the heart of economic
disclosure models, with voluntary disclosure providing managers with the opportunity to increase their transparency to
capital markets, reducing information risk, leading to a lower cost of capital, increased share price and increased liquidity
(Beyer et al., 2010). In addition to these capital market incentives, voluntary disclosure also facilitates monitoring by shareholders to reduce agency costs. However, various economic costs act as disincentives to full disclosure: loss of competitive
advantage, litigation exposure, and direct costs of collecting, processing and disseminating (Elliott & Jacobson, 1994).5
‘Narrative’ research outside North America since the 1980s has generally grown out of the widespread recognition in the
humanities and social sciences in the fundamental role of narrative in creating subjective meaning for human actors. Narrative
refers to words (e.g. chronicles, emplotted stories and interview transcripts) and can include pictures and other visuals. The
‘narrative turn’ refers to the interest in narrative in literary studies that spread to many disciplines. This general approach
encompasses a broad range of perspectives from a range of foundation disciplines; in particular, literary theory, which draws
upon continental traditions of sociology and philosophy to study how humans create meaning. A related term is ‘discourse’,
which refers either to the everyday conversational use of language or to a high-level societal concept that (critically) considers
the linkages between language, power and society (Alvesson & Kärreman, 2000). The term ‘linguistics’ can be used broadly to
refer to the positivistic scientific study of human language (e.g. corpus linguistics) as well as more meaning-oriented approaches (e.g. sociolinguistics) and critical approaches based on close reading of the text (e.g. critical discourse analysis).
Thus, research into accounting narratives broadly defined covers a broad spectrum from the large-scale positivist
economics-rooted quantitative analyses, more recently assisted by computerised linguistic techniques (discussed in Section
3.3 below) (e.g. Li, 2010), to quantitative content analysis supported by theory from the social sciences (e.g. Aerts and Cormier,
2009; Merkl-Davies & Brennan, 2011), to rich qualitative case studies, using discourse methodologies and methods from the
humanities (e.g. Davison, 2008). Recent NLP studies have focussed on readability, tone and markers of deception; traditional
content-analytic studies have focussed on topic, quantity and quality, while recent qualitative case studies have examined
impression management, storytelling, sensemaking and sensegiving. The paper offers a reflective commentary on key features of research into accounting narratives. I see myself as a researcher with a foot in both the disclosure and narrative camps
(if that is epistemologically possible). I will look at how the literature has developed and also offer some explanations as to
why this field of scholarly knowledge has developed in the way that it has. Based on a discussion of key issues, theory,
1
Otley (2003) reflects on management control research, Stark (2004) reflects on the estimation of economic performance using accounting data and
Scapens (2006) reflects on management accounting research.
2
Miller and Power (2013) also identify two ‘intellectual histories’ in the accounting literature.
3
The localised nature of research is indicated on the basis that 77% of academic papers show congruence between the origin of the researcher, the data,
and the journal. Asian researchers are found to hold views similar to North American researchers, while Australian/New Zealanders are more in agreement
with Europeans.
4
The term ‘archival’ is here to mean research that draws upon secondary data. This is the usage adopted in the North American positivist literature; it
does not align with how a historian would define an archive.
5
Survey and archival evidence generally find proprietary costs to be a crucial consideration (e.g. Beattie & Smith, 2012a; Ellis, Fee, & Thomas, 2012;
Graham, Harvey, & Rajgopal, 2005), although recent evidence indicates that this finding is not fully generalisable (Arya & Mittendorf, 2013).
V. Beattie / The British Accounting Review 46 (2014) 111e134
113
methodology and methods, a framework for thinking about research in accounting narratives is offered. The challenge for the
future is to better understand the narrative choices of human actors in financial reporting and the consequences of these
choices in the rich, complex information environment of external reporting. I will conclude by offering some suggestions for
future research, including a general plea for greater permeability of the boundaries between archival disclosure studies and
qualitative field studies.
The paper is structured as follows. Section 2 describes some key early influences on my career as an accounting researcher.
Section 3 traces the development of the literature while Section 4 examines the reasons for this development. Discussion of
key issues, theory, methodology and methods is covered in Section 5, including a research framework and suggestions for a
research agenda. A final section concludes the paper.
2. Personal journey
As this review will inevitably be influenced by my personal experiences, I will begin by offering an account of some key
early influences on my career as a financial accounting researcher. I came to my first academic post in 1983 (thirty years ago)
at Portsmouth Polytechnic (now Portsmouth University) after taking an economics degree at St Andrews University and then
training as a Chartered Accountant with ICAS. Importantly, therefore, I had had no education in what might be called accounting theory or accounting research. At the time, there was not a strong culture of research at Portsmouth so my efforts to
kick-start a research career were slow and difficult.6 Without a guide on my research journey, I struggled to make sense of
what I found in the journals. Even then, there appeared to be huge diversity in questions, theories, methodologies and
methods. Looking back, I can categorise most of the work as traditional normative theorising about accounting practices or
the early days of positive accounting research, but that is only understood in retrospect. How did the various pieces of work
relate to each other (if they did)? I did not understand how to classify research (using basic assumptions about knowledge and
society, and using theory and method) and thereby make sense of it. This set of circumstances is what sparked my enduring
interest in scholarly knowledge development.
However, a few papers stood out, in that their research questions and methods seemed very straightforward and the
papers were quite self-contained. One small set of papers looked at the use (and abuse) of graphs in annual reports (Johnson,
Rice, & Roemmich, 1980) and the other set looked at readability (or lack of it) in the narrative front-end of annual reports (e.g.
Adelberg, 1979). I thought, ‘I can do this’. This reinforced my interest in what regulators have termed in the past the ‘surround’
to the financial statements (suggesting a peripheral importance) and what is now acknowledged as a central component of
the reporting package (IASB, 2010). These sets of papers drew on ideas from other disciplines - statistical graphics and education, respectively, and I became more aware of the extent of interdisciplinary borrowing in one of my first published
papers (Beattie & Ryan, 1991). It was not until 1992 that I published my first paper arising out of these interests e a paper on
graph use and abuse (Beattie & Jones, 1992).
Two other papers had a major influence in those early years e Chua (1986) transferred Burrell and Morgan’s (1979)
identification of four distinct sociological paradigms into the context of the accounting discipline (thereby providing me
with a basic cognitive map of scholarly knowledge). She offered a useful taxonomy of three paradigms in accounting research
e mainstream, interpretive and critical e setting out the underlying philosophical and social assumptions of each approach. I
understood that my background knowledge and predisposition favoured a functionalist (positivist) approach to understanding the world. The other paper which influenced my thinking was Hines’ (1988) paper, which made clear that ‘in
communicating reality we construct reality’. This reflexivity was quite a revelation to me (and to many others at the time).
My interest in the ‘front-end’ of corporate reports led to a number of projects that examined developments in ‘business’
reporting (Beattie, 2000; ICAS, 1999), user needs (Beattie & Pratt, 2002), the issue of what is the meaning of ‘quality’ in relation
to accounting narratives (Beattie, McInnes, & Fearnley, 2004), the impact of institutional context and regulation on narratives
(Beattie, McInnes, & Pierpoint, 2008), the content analysis of narratives, focussing on limitations in relation to intellectual
capital (Beattie & Thomson, 2007), disclosure (Beattie & Smith, 2012a) and business models (Beattie & Smith, 2013). My
training as a Chartered Accountant has kept me grounded in the world of practice and my work in looking at financial
reporting/audit interactions with Stella Fearnley and others (Beattie, Fearnley, & Brandt, 2001, 2011) has allowed me to
understand the value of a range of methods, including qualitative methods and grounded theory, in understanding a phenomenon and generating theoretical insights.
3. HOW has the literature developed?
3.1. Early North American studies
In fact, the earliest papers relating to accounting narratives and readability were (rather ironically) published in the top US
journals (The Accounting Review and the Journal of Accounting Research). These papers spanned a period of ten years and
include Soper & Dolphin (1964), a paper on readability and corporate annual reports published almost fifty years ago, Smith &
6
These were the pre-computer-on-every-desk days, pre-electronic-database-literature-search days, when you walked over to the library and skimmed
through the journals, writing papers in longhand to be typed by a secretary on an electronic typewriter.
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V. Beattie / The British Accounting Review 46 (2014) 111e134
Smith (1971), Haried (1972; 1973) and Morton (1974). It was hoped that ‘readability’ would give a clue as to ‘understandability’ and, when this was shown to be a false hope, interest in the US, temporarily, dwindled.7
The ‘scientific turn’ had earlier taken hold in the US8 and the work of Watts & Zimmerman (1978) placed positive accounting research, with its emphasis on economic rationality and utility maximisation, centre-stage. In terms of methods,
analytical modelling and archival-based methods dominated. In terms of theory, the efficient market hypothesis, the capital
asset pricing model and agency theory were used to underpin market-based research and accounting choice research related
to valuation and stewardship issues. Interest in ‘disclosure’ focussed on mandatory disclosures; interest in voluntary
disclosure centred around management earnings forecasts. This dominant paradigm has retained a firm hold, despite some
periodic concerns from inside the US academic community that such research was becoming both increasingly selfreferential and distant from the practice of accounting (Basu, 2012; Demski, 2007; Granof & Zeff, 2008) and extensive criticism from non-US academics (e.g. Gendron, 2008; Hopwood, 2007).
3.2. Early narrative research outside North America e the narrative turn
Once of the first uses of the term ‘narrative’ in relation to accounting disclosures appeared in Adelberg’s (1979) paper in
Accounting and Business Research. The title of this paper explicitly referred to two potential roles for such narratives e
communication or manipulation e and the tensions between these roles. The form of manipulation in mind was the
obfuscation of negative outcomes.9 Sporadic interest in readability and the content of accounting narratives, especially the
chairman’s statement, continued. Ideas from psychology and social psychology began to permeate the boundaries of accounting research, in particular theories of cognitive perception (especially framing and biases, as proposed by Kahneman &
Tversky, 1979; Tversky & Kahneman, 1981) information inductance,10 introduced to accounting by Prakash & Rappaport,
1977), attribution (how people explain cause and effect) and impression management.
The starting point of attribution theory was the publication of The Psychology of Interpersonal Relations, by the Austrian
psychologist Heider (1958). It is now thirty years since the first research into attribution statements in corporate annual
reports, although this paper was published in Administrative Science Quarterly, not an accounting journal (Bettman & Weitz,
1983). Aerts has been the leading proponent of one particular form of impression management e attribution theory (e.g.
Aerts, 1994). Attribution is a form of causal reasoning that relates to the diagnosis of the cause of events that have already
occurred; in other words, it is retrospective (Aerts, 2005). The nature of attributions has been shown to be influenced by
cultural differences (Hooghiemstra, 2008; 2010).11 In interesting studies that combine quantitative archival research with
narrative analysis, Aerts, Cheng, & Tarca (2013) examine the association between accruals earnings management and causal
explanations in accounting narratives across four countries, finding close alignment, especially in mandatory institutional
regimes. Kimbrough & Wang (2014) find that investors use earnings commonality with both the industry and the market to
assess the credibility of attributions in earnings press releases.
The general notion of impression management soon began to emerge, although there was as yet no explicit reference to the
seminal work of sociologist Erving Goffman. Beattie & Jones (1992) relied upon the work of Birnberg et al. (1983) on information
manipulation to identify ‘biasing’ and ‘focussing’ as types of manipulation; first using the specific phrase ‘impression management’ in relation to graphs in 2000 (Beattie & Jones, 2000). Aerts (1994) combined attribution analysis with impression
management, also without referencing Goffman. Impression management, as applied to the textual and visual aspects of
corporate reporting, can be viewed as encompassing the well-established literature on the management of accounting numbers
(especially earnings management). A review of this early research into accounting narratives, focusing on content (thematic
studies) and readability (syntactic studies) was published in 1994 (Jones & Shoemaker,1994). Thematic studies were either formoriented (generally focussing on keywords, such as positive/negative keywords) or meaning-oriented (Smith & Taffler, 2000).
From the 1990s onwards, content analysis became a commonly-used research method in accounting (for good introductions to the method, see Krippendorff, 2004 or Neuendorf, 2002). The predominant form used was quantitative content
analysis, which entails the transformation of text into numbers and offers a summary description of the text which can
subsequently be related to other numbers (representing determinants or consequences). Due to the limitations of computer
technology and software, content analysis was conducted manually at the time. These semi-objective methods were of two
main types: disclosure index studies (a partial form of content analysis where the items to be studied are specified ex ante)
and thematic content analysis (a holistic form of content analysis where the whole text is analysed) (see Beattie et al., 2004).
Key characteristics of the index approach include (i) whether each item is measured in simple binary (i.e. presence/absence)
terms or an ordinal measure is used to try to capture quality aspects; and (ii) whether each item is weighted or unweighted.
7
A number of readability measures have been developed in the discipline of educational psychology: some are text-centred (e.g. the Flesch reading ease
formula, the Fog index, the Dale-Chall formula) and one (the Cloze procedure) is user-centred.
8
Two influential reports on higher education in US business schools called for the transfer of knowledge and methods from underlying disciplines,
causing business schools to adopt the scientific method (see Dyckman & Zeff, 1984). This was enabled by theory development in economics and finance and
by the development of databases containing accounting info and share prices.
9
Interestingly, this paper arose from the author’s PhD studies in the US.
10
Information inductance introduces a feedback loop into the communication process.
11
Causal reasoning also involves prediction. The range of psychological theories that relates to causal reasoning tends to highlight biases and heuristics
(Koonce, Seybert, & Smith, 2011).
V. Beattie / The British Accounting Review 46 (2014) 111e134
115
The thematic holistic approach (exemplified by Beattie, McInnes, & Fearnley, 2002) focuses on measuring abundance (using a
range of units). Many studies focus on a specific topic, such as intellectual capital or risk, with a smaller subset looking at the
time orientation attribute (i.e. forward-looking disclosures) or the link between company performance and narrative tone (i.e.
the ratio of positive to negative keywords) (e.g. Clatworthy & Jones, 2003). A useful critique of methods-related issues in
content-analysis is provided by Beattie & Thomson (2007), while Duriau, Reger, & Pfarrer (2007) offer an interesting review of
content-analytic studies in the field of organisation studies.
With hindsight, it can be seen that the study by Beattie et al. (2002) presaged the developments in text analysis discussed
in the next section. This study used general-purpose software (QSR NUD*IST) to analyse the manually coded accounting
narratives of UK listed companies. Sentences were split (parsed) into text units and four text attributes were captured: topic: a
hierarchy comprising nine main topics and 79 nested sub-topics); futurity (historic, forward-looking or non-time specific);
precision (quantified or non-quantified); and factuality (i.e. fact or subjective judgement). Since the annual report text was
not available in digital form, laborious data pre-processing involved first creating text files from hard copy annual reports
using OCR technology and then manually inserting bookmarks to indicate section headers (see Beattie et al., 2002; ch. 3 for a
full discussion). The Disclosure Profile explored each of the four dimensions separately and in combination. Although over
12,000 text units were analysed, this corpus represented a sample of only 27 companies, insufficient to support sophisticated
statistical analysis. Due to the intensely time-consuming nature of the process, subsequent research using this approach
tended to focus on a smaller sample of annual report material (often looking at only one attribute for which a wordlist could
be constructed) (e.g. Hussainey, Schleicher, & Walker, 2003).
In 1996, a series of three papers was published in a special section of Accounting, Organizations and Society, introduced by a
short piece by the editor Anthony Hopwood (Hopwood, 1996). These papers represented a critical turning point in the
development of research into the jointly constituted form and content (rather than content alone) of the corporate annual
report, as they began to draw upon the literature in literary theory, sociology and cultural studies.12 This was a literature
heavily influenced by the ‘narrative turn’ in the humanities and social sciences.13 ‘[N]arrative is international, transhistorical,
transcultural: it is simply there, like life itself’ (Barthes, 1977, p. 79). This famous quote from the French literary critic points to
the central role of narratives in social life. What is being referred to here is the narrative mode of knowing. The corporate
annual report is an accounting inscription that creates what can be seen and known (Robson, 1992). Perhaps the first explicit
recognition that accounting is a social construction to appear in the accounting literature was the seminal article by Ruth
Hines, titled ‘Financial accounting: in communicating reality, we construct reality’ (Hines, 1988).
Like Hines, Hopwood observes that the extant vocabulary of ‘disclosure’ suggests that economic ‘facts’ are being communicated. He notes that radical transformations in the annual report had been occurring, evolving from minimalist legal documents to
flamboyant documents exhibiting creative use of text and visual images. The paper by Graves, Flesher, & Jordan (1996) sees annual
reports as a form of rhetoric, a manifestation of the television epistemology of modern public discourse. The paper by Preston,
Wright, & Young (1996) identifies three different ‘ways of seeing’ images in annual reports (representational, ideological and
constitutive), drawing upon the critical studies of photography that developed in the 1980s. Both papers make use of the writings
of French theorists e Baudrillard, DeBord and Foucault,14 Chiapello & Baker (2011) provide a very useful summary of the introduction of French theorists to the accounting literature. During the 1980s and 1990s, the narrative turn in literary theory spread to
many disciplines e history, politics, sociology, economics, science (Czarniawska, 2004; Riessman, 2008, p. 14). It also gradually
took hold in the disciplines of organisation studies and accounting (Czarniawska, 1997; 1998).
Whereas literary theory draws upon continental traditions of sociology and philosophy to study the human construction
of meaning, linguistics is the study of human language. Early innovation from the field of applied linguistics came from Robin
Sydserff’s PhD, aspects of which were published in two papers with his supervisor (Sydserff & Weetman, 1999; 2002).15 The
1999 paper illustrated the use of a manual, user-centred ‘texture index’ to evaluate the communicative effectiveness of accounting narratives. The index was developed by Roseberry (1995) from the linguistic theory of De Beaugrande & Dressler
(1981). The overall index aggregated six text-centred and user-centred textual attributes.16 The 2002 paper, by contrast,
was an early example of the use of computer software (DICTION) to measure tone.
3.3. Resurgence of interest in North America
Around this time, an influential review article on the (mainly US) archival empirical disclosure literature was published in
one of the top US journals (Core, 2001). Of significance was the recognition that methods innovation was required in relation
to the development of computer-based analysis of aspects of natural language to underpin large-scale studies. The overall aim
12
This special section in the journal takes a constructivist, rather than a representational view of language.
The ‘narrative turn’ defined broadly includes visual material as well as textual material, however some authors refer to a later ‘visual turn’ (Bell &
Davison, 2013). The terms ‘literary turn’ and ‘rhetorical turn’ are also used by some authors.
14
The third paper, McKinstry (1996), is a longitudinal study of the changing form of Burton’s annual report and how this correlated with the company’s
fortunes.
15
I had the privilege of examining this PhD (Sydserff, 2001) (as an aside, it is interesting to speculate what might have been written had Robin stayed in
academe).
16
The six ‘indexicals’ were: topicality (adherence to the main topic), intertextuality (knowledge required of other material (e.g. financial statements),
conjunction (linkage), connectivity (answers prior question), information category shift, and specificity (e.g. quantification).
13
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of this line of research is to relate ‘objective’ linguistic features to company-specific characteristics, such as performance. This
has the potential to give incremental predictive ability over and above the financial statements.
One notable response to this call came in a paper by Li (2008), which marked a resurgence in interest in the semantic and
syntactic aspects of accounting narratives.17 Li employs two measures of readability e the Fog index18 and the raw word
count, whereas Loughran & McDonald (in press) show that document file size is a superior proxy to the Fog index in relation
to financial disclosures. Another significant contribution was a paper which examined the link between tone (or linguistic
sentiment)19 in the financial press and market returns (market sentiment) (Tetlock, 2007). This renewed interest can be
attributed to (i) the increasing availability of digitised text, (ii) the development of increasingly sophisticated computerised
software which permits large-sample studies of the type common in the positivist North American tradition of research, and
(iii) a concern with finding ways to enhance the predictive value of financial reporting due to the observed decline in the value
relevance of financial statements (Francis & Schipper, 1999).
Human languages comprise both words (the lexicon) and grammar (rules governing how words may be meaningfully
combined). Many linguistic accounting studies treat accounting narratives as a ‘bag of words’, where the concern is with
linguistic features such as word count, word difficulty and word frequency. In such studies, sentence structure (syntax) and
meaning (semantics) are not considered. The aim is to establish statistical associations between linguistic attributes of the
text and company performance and market variables.
Syntactical studies focus on language structures (i.e. grammar) at the level of a consecutive series of words, such as a
sentence.20 The field of corpus linguistics studies language patterns based on (usually large) samples of naturally-occurring
text. Corpus linguistics methods generally utilise computer software, are quantitative and employ statistical analysis. The
software may include part-of-speech tagging to reveal the underlying grammatical structures. Often keywords of particular
interest are specified for investigation. Keywords may be set ex ante or emerge from word frequency analysis. For these
words, the features isolated for investigation include collocations (commonly occurring word sequences or co-occurrence
within a specified word span) and concordances (words in context). Inevitably, however, the searches performed, and the
subsequent analysis of the search results (e.g. various sort procedures and inspection of lines of concordance data), require
human judgement. Keywords set ex ante are based on the research question and generally refer to a particular feature of the
text, such as: topic (e.g. risk), futurity, readability, tone, certainty, attribution, vividness, deception and self-references (i.e. use
of personal pronouns). Among the large set of aspects of text, these are the ones that, to date, have been identified as being of
particular interest in relation to the specialised form of financial communication that most accounting narratives represent.21
To date, many of these features have been examined using a given set of words (a wordlist) indicative of the feature (single
occurrences or co-occurrences) and obtaining a frequency count. These wordlists exist within the text analysis software
programme (although they may be modified to suit the specialised nature of the communication).22 Due to the prevalence of
homonyms in the English language, software often includes disambiguation rules.
The set of studies that searches for incremental predictive ability has related various linguistic attributes to outcomes such
as market returns, trading volume, financial distress, financial statement irregularities and corporate environmental performance. For example, Price, Doran, Peterson, & Bliss (2012) find that the tone of conference calls is a significant predictor of
abnormal returns and trading volume. Twedt & Rees (2012) examine tone in analysts’ reports, finding that this attribute has
significant incremental information content beyond earnings forecasts. Sprenger, Tumasjan, Sandner, & Welpe (in press) find
that the tone in microblogs (tweets) are associated with market share prices and trading volumes.
Humpherys et al. (2011) identify a range of linguistic cues relating to deception discourse constructs which are jointly able
to successfully predict fraudulent disclosures in MD&As. Fraudulent disclosures are associated with more activation language,
words, imagery, pleasantness, group references, and less lexical diversity. Another aspect of language found to impact investors’ judgements is vividness (with tone held constant). Vivid language (i.e. language that is emotionally interesting,
concrete and imagery-provoking) is more persuasive and is found to have a significant impact for investors who hold
contrarian positions to the market, consistent with psychology theory (Hales, Kuang, & Venkataraman, 2011).
In one of the first studies of spoken corporate reporting narratives, Hobson, Mayhew, & Venkatachalam (2012) examine
vocal markers of cognitive dissonance in CEO speeches during earnings conference calls. They find that such markers are
positively associated with the likelihood of irregularity restatements (i.e. misreporting in the financial statements).
17
As an aside, it is of note that researchers in North America publishing in top accounting and finance journals claim that Li ‘introduced’ readability
measures into the accounting literature (Irani & Oesch, 2013), when in fact this happened almost fifty years ago.
18
The Fog Index is calculated as 0.4(w þ x), where w ¼ average words per sentence and x ¼ proportion of complex (>2 syllables) words.
19
Sentiment refers to subjective opinion in text data. Linguistic sentiment analysis generally involves the creation of wordlists to capture ‘positive’ and
‘negative’ opinions. Tone is measured as the ratio of positive to negative words. Jegadeesh and Wu (2013) propose an alternative approach to measuring
tone that objectively extracts term weights from market reactions, rather than using a scheme that implicitly assumes all words have equal weighting.
20
Other areas of interest in linguistics include word structures (morphology) and language sounds (phonology).
21
Genre theory posits that a ‘genre’ is defined by recurring structural patterns which emerge from the objective and setting of the communication.
Rutherford (2005, 2013) provides a useful discussion of genre theory and financial narratives as a distinct genre.
22
An alternative approach to the use of wordlists is the use of an advanced machine learning approach, whereby text mining algorithms are constructed
based on the human coding (labelling) of an initial set of data (see, for example, Li, 2010; which uses the naïve Bayesian approach). For a discussion of this
method, see Ren et al. (2013).
V. Beattie / The British Accounting Review 46 (2014) 111e134
117
In the field of literary studies, what became known as ‘text analysis’ began in the 1940s when a computer-generated
concordance analysis of the works of philosopher Thomas Aquinas was produced (Ramsay, 2012). As the field has developed, methods of natural language processing (NLP), corpus linguistics (CL) and data mining have been used to study issues to
do with style and authorship. ‘Big data’, a term now in common use in the media, refers to the massive amounts of data now
available about people and their behaviour (Manovich, 2012). These datasets are currently beyond the analytical capability of
commonly used software tools. While some of the data may be structured and tagged (as in the case of 10-K filings), much of
the data is not, making it messy to deal with. While it is as yet unclear how best to use this data (Boyd & Crawford, 2011), what
is clear is that digitisation and the development of related software is transforming not only the natural sciences but also the
social sciences (including economics, finance and accounting) and the humanities (Gold, 2012). The danger is that it is all too
easy to find spurious correlations/relationships (Ramsay, 2012).
In addition to indirect, archival methods, direct methods have also been used to explore accounting narratives from a
positivist perspective. One line of research experimentally seeks to identify the impact on various language features (such as
the plausibility of management explanations) on individual judgements and decisions (e.g. Cianci & Kaplan, 2010). Another
line of research in the management field uses questionnaire methods to examine impression management (e.g. Westphal &
Graebner, 2010).
3.4. Continuing narrative research outside North America e storytelling, sensemaking and sensegiving, and discourse
Outside North America, two strands of research are apparent. One strand co-exists with the North American tradition. For
example, Schleicher & Walker (2010) find that the tone of forward-looking narratives is predominantly positive, even where
the impending news is bad.23
However, outside North America there exists a strong tradition of field research with institutional investors and managers
which challenges the restrictive premises and assumptions of conventional economic theory. This includes the equating of
‘useful’ with ‘price-sensitive’ and the assumption of human self-interest which is held to drive all behaviour (Barker, Hendry,
Roberts, & Sanderson, 2012; Christopher, 2010; Cuevas-Rodríguez, Gomez-Mejia, & Wiseman, 2012; Hendry, Sanderson,
Barker, & Roberts, 2007a, 2007b). One key finding to emerge from this field research has been the use of the metaphor of
‘story’ in relation to accounting narratives (e.g. Holland, 2004, 2005, 2006). This story consists of an oral or written narrative
about the various value creation processes; it is a ‘flexible, two way, cumulative, means to communicate . a shared form of
bounded rationality negotiated between the corporate story teller and core fund manager and analyst listeners’ (Holland,
2004, p. 47). Understanding of the story and confidence in the story represent two related information market states
which were viewed as being very ‘fragile’ with respect to company surprises and changes in market sentiment. This research
into the alternative roles of accounting narratives begins to bridge the gulf between rational, utility-maximising economicsbased disclosure theory and narrative theories (the latter drawing upon the behavioural disciplines of psychology and sociology as well as literary studies and philosophy). This second strand of research offers alternative explanations for disclosure
choices and language choices.
These interrelated and complementary perspectives, based around the triple lenses of impression management (Goffman,
1959), storytelling, and sensemaking and sensegiving (Weick, 1995), represent the continuation of the narrative turn. The
findings of recent archival studies into tone and vividness can be explained by reconceptualising the role of such reports away
from pure (economic) information content and towards behavioural and social motivations.
Impression management is concerned with the art of persuasion and makes considerable use of rhetorical devices such as
metaphor (for a useful introduction, see Cockcroft & Cockcroft, 2005).24 Dating back to Aristotle, three principal categories of
persuasion exist: ethos (persuasion through personality or authority), pathos (persuasion through the arousal of emotion)
and logos (persuasion through reasoning). Of the four classical rhetorical figures of speech (tropes) which infuse all language,
the most well-known is the metaphor, which relates a less well-known term to a more well-known one (Czarniawska, 2004,
p. 20). Following early work by Walters-York (1996) and Brennan & Gray (2000), Amernic, Craig, & Tournish (2007) identify
five distinct metaphors in CEO letters e pedagogue, physician, architect, commander, and saint. Metaphor in CEO letters is
also the focus of Bujaki & McConomy (2012).
Research into impression management in accounting narratives took a significant step forward when Doris Merkl-Davies
(supervised by Niamh Brennan and Stuart McLeay) focussed her PhD work on the subject.25 With others, these authors have
set in motion a strong stream of research into impression management (see, especially, Merkl-Davies & Brennan, 2007; 2011;
Merkl-Davies, Brennan, & McLeay, 2011; Merkl-Davies & Koller, 2012). This line of research draws upon the classic work of the
Canadian-born sociologist Erving Goffman (especially his book titled The Presentation of Self in Everyday Life (Goffman, 1959),
23
This study uses manual content analysis.
However metaphors are not simply about persuasion. Cognitive metaphor theory of Lakoff and Johnson (1980) views the human conceptual system as
fundamentally metaphorical in nature. More recent discourse approaches view metaphor as emerging interactively from the dynamics of language and
thinking (e.g. Cameron & Deignan, 2006).
25
Merkl-Davies has been instrumental in setting up a research centre at Bangor University in 2012 devoted to impression management in accounting
communication. The Centre for Impression Management Research in Accounting Communication (CIMAC) can be found at http://cimac.bangor.ac.uk/.
24
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which adapts ideas from the theatre (dramaturgy)).26 Recent papers explore the interaction between impression management and corporate governance (García Osma & Guillamón-Saorín, 2011) and impression management in face-to-face
meetings between directors and users (Solomon, Solomon, Joseph, & Norton, 2013).
‘Story’ is not the same as narrative, as Riessman (2008, p. 3), a leading writer on narrative analysis, and Czarniawska (2004,
p. 17), a leading writer on narratives in organisations, both make clear.27 A story is an ‘emplotted narrative’. Chronicles
comprise a series of causally connected events, but without plot. A plot moves the events from one equilibrium to another,
through a phase of disequilibrium. The periodic nature of financial reporting means that the story in corporate annual reports
is provided in instalments. Disturbances to the initial equilibrium come in the form of external events (e.g. takeover or
financial crisis) and/or changes in the company’s business model. Storytelling has been studied extensively in the field of
organisational studies (e.g. Adamson, Pine, Steenhoven, & Kroupa, 2006; Boyce, 1996; Gabriel, 2000; Hansen & Kahnweiler,
1993). The leading writer, Gabriel (2000, p. 146), identifies four distinct story types that are used extensively in organisations
e the epic story, the tragic story, the comic story and the romantic story.
In relation to accounting narratives, Jameson (2000) was perhaps the first paper to view shareholder reports as an investment ‘story’. Subsequent research is beginning to identify a range of story types in the narratives of market participants
and financial narratives more generally (e.g. Eshraghi & Taffler, 2013; Jameson, 2014). Papers that examine the use of fantasy
in organisations and markets can also be viewed as a story type (Eshraghi & Taffler, 2012; MacIntosh & Beech, 2011). Research
now needs to move on to answer the ‘so what?’ question. It is no longer novel (a discovery) to demonstrate that accounting
narratives use stories, metaphor, attributions, etc. and offer a general explanation for this. We now need to develop more
finely nuanced explanations of the set of circumstances influencing the nature of these features and their intensity.
It is notable that the story metaphor has begun to pervade recent debates regarding the future of narrative reporting.28 In
the UK, the government has recently approved new requirements for a high-level strategic report (The Companies Act 2006
(Strategic Report and Directors’ Report) Regulations 2013)29 intended to ‘allow companies to tell an integrated story in their own
words, starting with their business model and strategy’ (BIS, 2012). Guidance is currently being prepared by the FRC (2013a).
A story is inherently holistic, with cohesiveness being a key attribute. Beattie & Smith (2013) argue that the current calls for
‘business model’ reporting and ‘integrated reporting’ (IIRC, 2013) formalise the story concept, by signalling a move towards
integrated, narrative-based reporting around the central business model story.30
The concepts of sensemaking and sensegiving were introduced by Gioia & Chittipeddi (1991) to describe the role of the
CEO in instigating strategic change. The sensemaking process occurs when an interpretive scheme is developed to ‘make
sense’ of a situation. This process is most associated with complex and/or uncertain situations; it involves comprehension
explicitly in words and leads to action (Weick, Sutcliffe, & Obstfeld, 2005). The related sensegiving process occurs when one
actor seeks to influence the sensemaking of another, often by using persuasive language in these interactions (Weick, 1995).
Thus, language and narrative are fundamental to sensegiving and sensegiving, in turn, involves sensemaking (for a recent
review of this body of work, see Maitlis & Christianson (2013)). Sensegiving activities can gain attention, create legitimacy and
thereby attract resources to organisations (Petkova & Rindova, 2013). Both processes are often embedded within stories
(MacLean, 2012) as storytelling can be viewed as a way on infusing meaning into events and action, thereby offering a means
of retrospective sensemaking (and sensegiving). This interpretive frame is beginning to permeate the accounting discipline.
For example, in their investigation of deception in chairmen’s statements Merkl-Davies et al. (2011) do not find evidence of
deception; rather, in the face of poor outcomes, chairmen engage in retrospective sensemaking.
The term ‘discourse analysis’ can refer to the micro/meso level analysis of specific texts or the macro-level analysis of the
relationship between discourse and social orders (Alvesson & Kärreman, 2000). In both cases, the interest lies in the way in
which language and meaning are coupled together.31 Fairclough (2010) identifies discourse analysis as broadly descriptive,
whereas critical discourse analysis introduces a normative element by focussing on what is wrong in a society. Excellent brief
discussions of the similarities and differences between content analysis and discourse analysis (in terms of methodology and
methods) can be found in Hardy, Harley, & Phillips (2004), Hopf (2004) and Neuendorf (2004).
Accounting researchers have used discourse analysis to explore corporate social responsibility (CSR) reporting, including
the emerging discourse of corporate climate change reporting (e.g. Milne, Tregidga, & Walton, 2009; Solomon, Solomon, &
Norton, 2011), and reporting in crisis situations (Beelitz & Merkl-Davies, 2012; Craig & Brennan, 2012). Linguists with an
interest in financial communication have also drawn upon this approach. Crawford Camiciottoli (2010a) grounds her
discourse analysis of conference calls in genre theory, finding distinct structural patterns (a macrostructure comprising moves
and steps), a high level of intertextuality (references to other texts) and substantial interdiscursivity (adoption of practices
26
Graves et al. (1996) do not mention impression management, although Goffman’s 1976 work on non-verbal uses of rhetoric is mentioned. Impression
management is mentioned in Preston et al. (1996, p. 119), however the classic work by Goffman (1959) is not referred to.
27
It is easy to become mired in definitional issues surrounding the terms ‘narrative’, ‘story’ and ‘discourse’. Both broad and narrow definitions of each of
these overlapping concepts exist. In broad terms, this paper views stories as a subset of narratives. In turn, narratives can be viewed as a form of discourse, i.
e. meaningful symbolic behaviour. The analysis of ‘discourse’ refers to the way in which language is used in social life (see Fairclough, 2003, p. 3).
28
An example from the practice sphere is the ironically titled Spice up the Story: A Survey of Narrative Reporting in Annual Reports (Arthur Anderson, 2000).
29
Available at: http://www.legislation.gov.uk/uksi/2013/1970/contents/made.
30
Definitions of the business model concept often use ‘story’ concept (Zott, Amit, & Massa, 2011).
31
Fairclough (2010) also identifies three levels of analysis e text, immediate organisational context and wider societal context.
V. Beattie / The British Accounting Review 46 (2014) 111e134
119
from other genres). van Leeuwen (2013) offers a detailed example of one form of critical discourse analysis applied to
corporate annual reports.
Finally, following on from the narrative turn is the ‘visual or pictorial turn’ (Mitchell, 1994). This line of work is heavily
influenced by the work of Barthes (1977, 1981) on visual rhetoric and championed in the accounting discipline by Davison (e.g.
2004, 2007, 2008), an accounting researcher with a literary background. She builds upon the pioneering work on visual
images in accounting documents of the mid-1990s. Other works include Preston & Young (2000), Campbell, McPhail, & Slack
(2009), and Kamla & Roberts (2010). For up-to-date reviews of empirical and theoretical approaches in the field of visual
management and organisation studies, see Bell & Davison (2013) and Meyer, Höllerer, Jancsary, & van Leeuwen (2013).
To summarise, this distinctive European second strand of research introduces social context into accounting narratives
research, either by using contextualised field study methods or by adopting narrative theories and methodologies that view
language as socially constitutive.
4. WHY Literature developed as it did
4.1. Scholarly knowledge development
As previously explained, I had an early interest in understanding how the research literature fitted together, i.e. in
scholarly knowledge development. In the course of pursuing this interest, I read about paradigms, scientific revolutions,
invisible colleges, bibliographic citation practices and social closure. This led to a paper which summarised my thinking at the
time and constructed empirically-grounded maps of the discipline (Beattie & Davie, 2006).32
Many factors can influence the development of accounting thought: individuals, groups, institutions, journals, new ideas
(in the form of concepts, methods or theories, whether generated from inside or outside disciplinary boundaries), the
accountancy profession, and external social, economic, and cultural factors. Often developments emerge from the interplay of
three sources of influence: internal cognitive (i.e. intellectual) factors, internal social factors and external influences. Because
financial accounting is a social science discipline with practical application, it is especially open to influence from the outside.
External events can shift research priorities and create new research areas.
Kuhn’s (1962, 1970) model of knowledge growth relativised science to some extent, although the focus was on cognitive
factors. In the second edition of his book, Kuhn (1970) emphasised the central role of the social structure of science, making
reference to the potential value of studies of scientific communication and the social stratification of science (Cole & Cole,
1973; Price, 1961, 1963). This class structure of scholarly communities is derived both from the nature of scholarly writings
and from the nature of the system of knowledge production, grounded in publications and subsequent citations (Harre, 1986).
Gradually, a unified area of study termed the sociology of scientific knowledge emerged (Knorr-Cetina & Mulkay, 1983;
Woolgar, 1988).
In Beattie & Davie (2006), four different general neo-Kuhnian models of scholarly knowledge development were reviewed
and compared: the ‘four stage model’; the ‘branching model’; the ‘interest model’; and the ‘closure model’. Each focuses on a
different aspect of development, providing, in combination, a rich understanding of the processes by which theories and
associated theory groups emerge, grow, and decline. First, the static four stage model proposed by Mullins (1973) is grounded
in the theoretical social construct of the ‘invisible college’, a concept introduced by Price (1963) to refer to the social relationships between scientists who share common interests but may be located at different institutions (Crane, 1972; Price,
1963). The four stages of theory development (normal; network; cluster; and speciality) are each characterised by empirically
demonstrable social and cognitive characteristics.
Second, Mulkay’s (1975, 1979) branching model explicitly considers the forces giving rise to the emergence and decline of
new research areas. These forces, generated by the evaluation and reward system in science (Merton, 1973), motivate researchers working in areas which are experiencing a decline in the significance of current results to attempt to initiate a new
research area. It is presented as a three stage model e exploration, growth, and decline and disbandment - with the growth
stage encompassing both the exponential (network) and the linear (cluster) growth stages of Mullins’ model. However, the
model fails to (i) incorporate the influence of factors external to the system and (ii) to consider adequately the mechanisms
through which consensus and closure are achieved.
Third, the interest model emphasises particularly the role of external factors of a social, political, and cultural nature,
thereby overcoming one of the main deficiencies of the branching model (a focus on internal factors) (Barnes, 1977; Bloor,
1976). This model claims that the social organisation of science, and of society at large, affects the content of scientific
knowledge and the processes by which these ideas are accepted or rejected.33
32
This paper, originally sole-authored, took many years to publish. It was rejected by at least two journals principally because the empirical mapping
relied upon the SSCI (hence few accounting journals were included) and included only lead authors. I was (rightly) compelled to create a hand crafted
database, which became a ‘hobby’ over several years. My colleague at Stirling, Elizabeth Davie, helped me create the Access database necessary for this and
became a co-author. By this time the empirical maps were very dated (ending in 1990) and hence this remains the only paper that I have published in an
accounting history journal! I have found the maps to be very useful for teaching advanced research-led courses in accounting, as they serve as an ‘advance
organiser’ to encourage integrated learning (Mayer, 1987). I would be very interested to see how the maps have evolved in the last two decades.
33
Watts and Zimmerman’s (1979) influential economic analysis of the determination of accounting theory (as ‘excuses’) is also based on the ‘interests’ of
actors.
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Finally, the closure model focuses on consensus and closure mechanisms (Collins, 1979; Parkin, 1974), drawing upon the
Weberian concept of social closure (Murphy, 1988). Power is used strategically by groups to effect exclusionary (downward)
closure or usurpationary (upward) closure. When closure theory is applied to scholarly communities, the higher groups can
be said to comprise the dominant perspectives of the discipline.34
4.2. Developments up to 1990
Using author co-citation analysis,35 Beattie and Davie (2006) construct empirical maps of the intellectual structure of
accounting to reveal the theoretical and social groups within accounting’s scholarly community.36 These maps are described
and interpreted with reference to the composite model of scholarly knowledge development that blends the distinct theoretical emphases of the four neo-Kuhnian perspectives. This composite model offers explanations for the emergence and
evolution of the theory groups of the time (income theory/standard-setting, positive accounting theory (PAT), behavioural,
management/critical).
This interpretation emphasises that, following on from the normative income determination model of Paton & Littleton
(1940), the income theory/standard-setting theory group was experiencing a decline in the significance of its results, leading researchers seeking reputational capital to look for new ‘discoveries’. New questions about accounting began to be asked,
and these were answered from a variety of methodological stances, using theories, methodologies and methods from a range
of other disciplines (Peasnell, 1978). The growth of the PAT/market-based accounting research (MBAR) group in the latter time
period illustrates the importance of social relationships in the evolution of theory groups, driven initially by the link with the
University of Chicago and spanning out over time to form an invisible college of scholars. Key individuals fulfilled the role of
intellectual and/or organisational leaders for specific theory groups, by producing successful new writings and/or by setting
up specialist conferences and journals.37 The growing extent of interdisciplinary borrowing in accounting is consistent with
the branching model (Beattie & Goodacre, 2004).
The role played by the academic evaluation and reward system in creating reputational capital has intensified in the U.K. as
a result of the periodic government evaluation exercises (see www.ref.ac.uk). Key external influences on the nature of subsequent discoveries were: developments in other disciplines, which were applied to accounting; greater data availability; and
changes in the financial reporting environment (in particular, new accounting standards which, in turn, reflect broader societal changes). Despite the declining significance of results, and in line with the interest model, the income theory/standardsetting theory group held a central position within the discipline, due to the proximity of such research to the accountancy
profession and to the consumers of accounting theories generally.
4.3. Developments since 1990
Moving beyond 1990, and focussing only on the accounting narratives literature, one can trace cognitive influences on
accounting research of a similar nature to those of the previous era. It was now the turn of the PAT group to experience a
decline in the significance of results (Watts & Zimmerman, 1990). Key constructs proved difficult to proxy, no consistent
evidence emerged in relation to the three key hypotheses and there was a poor level of explanation of share price
movements.
Researchers were motivated to look at accounting narratives to provide incremental explanatory power and interest in
earnings management increased. Just as theoretical developments in finance (EMH and CAPM) were instrumental in the
emergence of empirical MBAR, theoretical insights described collectively above as the ‘narrative turn’ served to launch new
areas in accounting research.
Of course, narrative analysis requires narratives to study. Financial statements have a long history and have been
changing rather slowly. By comparison, narratives in the corporate annual report are more recent and are evolving
rapidly, due to external influences on the world of practice which have increased the importance of narratives. At
least three particular influences can be identified: the changing nature of business, changing social attitudes with
regard to CSR (especially sustainability) and particular shocks (such as the financial crisis). Each will be considered in
turn.
34
It is the successful exercise of usurpationary strategies which results in the special case of revolutionary change described by Kuhn.
Author co-citation analysis is concerned with the number of times a document cites both author X and author Y, i.e. a particular author pair. The cocitation counts of one author with all other authors (i.e. the counts from multiple author pairs) determine the location of that author in relation to all other
authors in intellectual space. Authors serve as ‘concept markers’; some are ‘boundary authors’, in that their work falls into more than one area. The analysis
of the co-citations involves multidimensional scaling and cluster analysis.
36
To do this, a hand-crafted database was created based on 4211 papers from nine leading journals over a nineteen year period (1972e81 and 1982e90),
giving rise to 122,485 citations to 25,635 cited authors.
37
The emergence of: Journal of Accounting Research in 1963, a journal dedicated to empirical research in accounting; Journal of Accounting and Economics
in 1979, edited jointly by Watts and Zimmerman, associated with the development of a group of positive accounting theorists, dedicated to the application
of economic theory to accounting issues; and Accounting, Organizations and Society in 1976, edited by Hopwood, supported the continuing development of
‘behavioural’ accounting and introduced organisational and societal perspectives. Hopwood was, in some respects a bridger researcher, as he earned his
PhD in the US before returning to work in the UK.
35
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121
First, business had become more knowledge-intensive in the 1980s, increasing the information asymmetry between the
company and outsiders. Consequently, the market demanded more information about company value creation and the role of
intangibles (which were not generally reflected in the financial statements. The profession became concerned that the
traditional backward-looking accounting model was perceived as inadequate, threatening the profession. During the 1990s, a
raft of new reporting models was developed by professional accountancy bodies, large accountancy firms, and (quasi) regulatory bodies.38 In a key early report, the AICPA (1994) proposed a ‘comprehensive model of business reporting’ that
captured more non-financial, forward-looking and soft information about strategy, risk and intangibles, giving readers an
understanding of the company ‘through the eyes of management’. As management became charged with describing and
explaining the reasons for changes in performance and financial position, it was not surprising that attributions and stories
emerged. A useful comparison of the related developments in the regulatory framework for narrative reporting in the UK
compared to the US, and at international level, can be found in Beattie et al. (2008, chap. 2). Internationally, the IASB MD&A
project was initiated in 2002, with the final Practice Statement being issued in 2010 (IASB, 2010). The stated purpose of the
management commentary is to ‘provide users of financial statements with integrated information that provides a context for
the related financial statements’ (IASB, 2010; emphasis added).39 Thus, the notion of ‘integration’, later to appear prominently
in the proposals of the IIRC, pre-existed.
A second factor leading to growth in the importance of narratives seems to be growing interest in matters related to CSR
and (more recently following energy shortages and global warming) sustainability. Business gradually came to regard
reporting on such matters as important for establishing and maintaining legitimacy. These reports tended to be largely
narrative in nature.
Finally, and most recently, there was the growing length and complexity of the financial statements themselves, which were
viewed as increasingly impenetrable and were believed to have contributed to the financial crisis.40 Post-financial crisis, there
is therefore likely to be increasing reliance on narratives in the business reporting package.41 A significant global development
is the formation of the International Integrated Reporting Council (IIRC).42 In 2013, the IIRC and IASB signed a memorandum of
understanding, thereby signalling their cooperation in the development of an integrated reporting framework.
In the management accounting sub-discipline, the ‘practice turn’ (see, for example, Ahrens & Chapman, 2007) followed on from a similar turn in the management discipline (especially organisation studies) and other foundation
disciplines (Whittington, 2006). Contemporary social theory considers that it is through action and interaction within
practices that knowledge is constituted and social life is organised, reproduced and transformed (Schatzki, Knorr-Cetina,
& Savigny, 2001). This focus on detailed practices led to many interpretive field studies and a considerable literature on
theory generation, methodologies and methods. The practice turn has not yet permeated financial reporting research to
the same degree, perhaps because the latter lies closer to the discipline of economics.
In addition to cognitive influences, and external influences from the world of practice, accounting research post 1990 has
been influenced by internal social factors and external factors related to technology and the institutional setting. Leaders in
the academic community set up new journals which encouraged interpretive and critical research, offering an additional
counterbalance to the US journals.43 Advances in technology (in the form of easy and widespread access to (searchable)
electronic literature journal databases has served to globalise the (invisible) community of scholars and facilitate interdisciplinary borrowing. In addition, digitised databases of structured accounting narratives have emerged and there have been
significant advancements in NLP software.
5. Discussion: issues, theory, methodologies, methods and a research framework
This sub-section discusses a range of considerations of relevance to research on accounting narratives. These considerations relate to practical issues, theory, methodologies and methods. While some of these considerations apply equally to
38
A useful summary and discussion of these models is provided in ICAEW (2003, 2009).
Such information explains management’s view not only about what has happened, including both positive and negative circumstances, but also why it
has happened and what the implications are for the entity’s future. Management commentary complements and supplements the financial statements by
communicating integrated information about the entity’s resources and the claims against the entity and its resources, and the transactions and other
events that change them. Management commentary should also explain the main trends and factors that are likely to affect the entity’s future performance,
position and progress. Consequently, management commentary looks not only at the present, but also at the past and the future’ (IASB., 2010; paras. 9e11).
40
The UK Treasury Committee inquiry into the banking crisis (2009) suggested that ‘the big picture was lost in a sea of detail and regulatory disclosures’ (x
221).
41
Not only narratives provided by management, but also those of the external auditor (The FRC is consulting on further extensions to the audit report (ISA
(UK and Ireland) 700) (FRC, 2013b).
42
The IIRC was formed by the Prince’s Accounting for Sustainability Project (A4S) and the Global Reporting Initiative (GRI). It is a consortium of leaders
from the corporate, investment, accounting, securities, regulatory, academic and standard-setting sectors as well as civil society. In its concept discussion
paper, the IIRC defines integrated reporting as follows: ‘Integrated reporting brings together material information about an organization’s strategy,
governance, performance and prospects in a way that reflects the commercial, social and environmental context within which it operates. It provides a clear
and concise representation of how an organization demonstrates stewardship and how it creates and sustains value. An Integrated Report should be an
organization’s primary reporting vehicle’ (2011, p. 2).
43
Notably, the emergence of: Accounting, Auditing and Accountability Journal in 1988; Management Accounting Research in 1990; and Critical Perspectives on
Accounting in 1990.
39
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both positivistic and interpretive/critical research, some relate specifically (or more closely) to one or other of these approaches. In combination, these considerations map out key aspects of the domain of narrative accounting research and
underpin the development of a research framework.
5.1. Authorship and audience
For many accounting narratives, the identity of the author is unknown. For example, in the case of corporate annual reports, there will likely be many individuals involved. Although some sections may have formal authorship attributed (e.g.
Chairman’s statement), the text may be initially draughted by someone else. Anecdotal evidence suggests that multiple
authors are common in listed companies, including input from company secretarial, investor relations, finance and treasury.
The material may be draughted and edited over a period of several months, as part of a complex process of scripting. Three
contributors to the process can be conceptually distinguished: the individual whose ideas are being represented (principal);
the individual who undertakes the scripting (author); and the individual who communicates the text (animator) (Goffman,
1981).
In terms of audience, one can conceptually distinguish (i) actual from intended audience; (ii) direct versus indirect
communication; and (iii) small-scale versus mass communication although, in practice, these distinctions are not always
clear. Audience analysis, in its various methodological forms, might fruitfully be applied to accounting narratives (e.g. Press,
2006).
5.2. Contextual characteristics of accounting narratives
A wide variety of material contains accounting narratives. The originating source is one key contextual characteristic. This
may be the reporting entity (company, public sector organisation, charity), information intermediary (analyst reports,
financial press), or another party in the reporting supply chain (external auditor, accounting regulator). These sources use a
variety of channels to communicate, from formal documents (e.g. annual reports, social responsibility reports, IPO prospectuses, profit forecasts, takeover documents, analysts’ reports, accounting standards and interpretations, statements by
professional bodies and regulatory oversight reports) through websites, press releases and press reports, to informal social
media posts by senior management, business commentators and investors (e.g. Facebook, Twitter).
The narrative material may be written or spoken (verbal). Spoken narrative includes conference calls, management
presentations at AGMs and one-to-one meetings. Vocal attributes can be analysed as can textual attributes (if the audio file is
transcribed). Other distinctions are between: (i) routine communications (e.g. annual reports) and non-routine communications (e.g. takeover defence documents; IPO documents; crisis communication following some critical event); and (ii)
formal and informal material.
5.3. Choice, variation and narrative norms
Accounting narratives contain embedded choices by the (often unknown) principal and author. Even where there is
some degree of mandation in relation to the narrative content (and even form), considerable discretion exists. The choices
made may be intentional or unintentional (i.e. sub-conscious). The quantitative assessment of similarity and difference
between sets of accounting narratives can be examined using various similarity indices (e.g. from the simple comparison of
a quantum amount of a narrative feature to sophisticated clustering techniques based on many features (e.g. the cosine
similarity index).
Often, knowledge and understanding come from making a comparison with a notional norm which acts as a benchmark. In
the earnings management research area, researchers have developed increasingly sophisticated models to estimate discretionary (or ‘abnormal’) accruals (for a review of these proxies, which have developed from the original Jones model (Jones,
1991), see Dechow, Ge, & Schrand, 2010), based on company characteristics. These proxies for earnings management activities are related to various determinants and consequences. Managerial incentives represent a crucial set of determinants,
which can result in earnings management strategies such as (i) earnings smoothing; (ii) management around key thresholds
(in particular profit/loss, year-on-year increase/decrease and meeting consensus earnings targets); and, in extreme circumstances, ‘big bath’ strategies. One can envisage a parallel literature emerging to proxy discretionary (or abnormal)
amounts of various narrative features (such as readability, tone, etc.), linking this to narrative strategies and managerial
incentives. Certainly, there is an emergent literature on the narrative and discourse strategies employed by organisations in
situation of crisis and reputation threat (e.g. Beelitz & Merkl-Davies, 2012; discussed above). This approach would treat
financial communications as a distinct genre set (Rutherford, 2005; 2013), with sub-genres for CEO statements, corporate
press releases, earnings conference call presentations, etc. (Ditlevsen, 2012). Each sub-genre would have associated ‘normal’
amounts of various narrative features.
5.4. The ‘quality’ concept
The concept of ‘financial reporting quality’ has come into prominence in recent years, following various accounting
scandals and crises. Although the term can mean many things, it can be viewed as an umbrella term for the quality of
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123
accounting numbers (e.g. earnings quality) and the quality of accounting narratives, both of which are moderated by audit
quality. Of course, the notion of ‘quality’ is at one level inherently subjective (with conflicting preferences across user groups
interested in making different judgements and decisions). At a deeper (critical) level, the construct is highly contestable.
The positivist literature seeking to understand how the quality construct might be proxied in relation to accounting
narratives includes key papers by Beattie et al. (2004), Beretta & Bozzolan (2004) and Botosan (2004). Beattie et al. (2004)
draw upon research into how the complex, context-dependent and subjective ‘quality’ construct is measured in a wide variety of disciplines (e.g. quality of life, product quality), in proposing a composite quality measure (comprising measures of
relative amount and topic spread). Botosan (2004) proposes the use of quality dimensions drawn from the conceptual
framework (desirable qualitative characteristics). However this approach is acknowledged to be regressive and intractable as
it leads to multiple second-order concepts many of which are equally difficult to measure.44 More recent studies have sought
to uncover the nature of the relationship between quantity and quality, although no stable conclusion has emerged on this
issue. For example, Hooks & van Staden (2010) find measures of each construct to be highly correlated for environmental
disclosure. They define quantity as the ‘comprehensiveness’ of information (index score based on 23 items) and a 5-point
quality scale.45 In turn, there are two principal approaches to the measurement of quantity e abundance and occurrence.
While both approaches use a pre-specified list of disclosure items (or concepts), the former counts the volume of the presence
of each item (for example, in words or sentences), whereas the latter uses a disclosure index. It has been shown that these
measures are quite dissimilar (Joseph & Taplin, 2011).
What is clear is that research into accounting narratives would benefit from a clear distinction being made in each study
between construct dimensions (individual or aggregated) and the underlying (i.e. latent) construct of interest. There should
also be a discussion of the relationship between these (Wong, Law, & Huang, 2008).
5.5. Narrative features
In addition to the narrative features identified above, many others may prove to be of importance to a holistic understanding of accounting narratives. These include inter alia: argumentation schemes, hedging, repetition (within or across
texts), and markers of dysfunctional corporate leadership (e.g. narcissism, Machiavellianism and hubris).
Argumentation strategies concern the inferential configuration of arguments, i.e. plausible propositions are presented
from which a proposition (the standpoint) is inferred (Rigotti & Greco Morasso, 1010). Argumentative ‘moves’ can be analysed
based on close reading to identify features such as connectives (e.g. use of the word ‘so’) and modal expressions (e.g. use of
word ‘perhaps’). An example of this type of study based on accounting narratives is Crawford Camiciottoli (2010b), who
compares the incidence and function of connectives in earnings presentations (verbal) and earnings releases (written).
Research of this type would extend the existing work using attribution analysis.
‘Hedging’ in linguistics refers to expressions of tentativeness and purposeful vagueness and is an aspect of argumentation.
Hedging devices include the use of impersonal phrases, vague quantifiers, conditional clauses, time references, downtoners
and concessive conjuncts. To date, there has been little research into linguistic hedging in accounting narratives, although a
recent paper by Resche-Ricard (2014) focuses on financial discourse (in speeches by central bankers).
Dailey & Browning (2014) discuss narrative repetition in the form of story retelling within organisations; retelling of this
type could be explored across corporate documents and also across different financial commentators (analysts and financial
press).
In terms of linguistic personality markers, extant studies using financial communications examine CEO hubris (i.e.
overconfidence, arrogance) from letters to shareholders (Brennan & Conroy, 2013) and the unethical tone at the top set by
Rupert Murdoch, Chairman and CEO of the News Corporation (Amernic & Craig, 2013). Further research into other personality
traits is required.
5.6. Sequential strategic narrative choices
In exploring these choices, research in other areas suggests that it may be analytically helpful to distinguish (at least two)
stages in each ‘turn’ of the communication process. For example, Beattie & Jones (2008), in their studies on graphical reporting
choices, distinguish between the primary graphical choice (whether to include a graph of the variable or not) from the
secondary graphical choices (how to present the graph, conditional on the decision to include a graph). Similarly, Bouton,
Everaert, & Roberts (2012) utilise a two-step approach to show that different company and industry determinants influence (i) the decision to disclose (i.e. presence versus absence) and (ii) the level of disclosure. More generally, prospect theory
distinguishes two phases in the choice process: framing followed by evaluation (Kahneman & Tversky, 1979).
44
Recent papers in US journals use market-based metrics (such as changes in market liquidity (Rogers, 2008) and the ratio of firm-specific return
variation to firm-specific cash-flow variation (Berger, Chen, & Li, 2012)) to measure ‘disclosure quality’. These measures are essentially overall proxies for
overall ‘information’ quality (whether numerical, narrative, speech, etc.).
45
0 ¼ not disclosed; 1 ¼ minimal coverage, little detail; 2 ¼ descriptive; 3 ¼ quantitative; and 4 ¼ truly extraordinary, benchmarking against best
practice.
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5.7. Interdependencies between reporting decisions
In the 1980s, the heyday of PAT accounting choice studies, a key paper was published by Zmijewski & Hagerman (1981)
which moved on from looking at single accounting choices, instead recognising that a set (or ‘portfolio’) of choices were
made. Because these choices were linked by a common goal, they became interdependent. Thus, examining one accounting
policy choice in isolation could result in incorrect inferences. Since these studies were undertaken, the sets of managerial
choices available has grown considerably, in line with the complexity of the reporting package and therefore there is a
commensurate need to consider (or at least recognise) sets of interdependencies. In particular, we must consider interaction
effects among (at least) seven choice axes: (i) real transaction management versus reporting choices; (ii) between mandatory
versus voluntary disclosures; (iii) within documents (a reporting bundle) but across reporting formats; (iv) across communication channels; (v) across sources (company-sourced versus non-company sourced); (vi) between organisations; and (vii)
temporal interactions. Representative studies on each axis will be identified where possible.
First, Beyer & Guttman (2012) model the interdependencies between real effects via operating, financing and investment
decisions and voluntary disclosure decisions. The overall aim is to improve investors’ perception of firm value, hence joint
optimisation means that sub-optimal real decisions may be made to permit more favourable disclosures to be made.
Second, Einhorn (2005) models the interaction between mandatory disclosure and voluntary disclosures. One of the issues
here is whether both disclosure types are complements or substitutes. Ball, Jayaraman, & Shivakumar (2012) finds that
audited financial reporting and voluntary disclosure (in the form of management earnings forecasts) are complements, hence
their economic roles cannot be evaluated separately, as in market reaction studies.
Third, there may also be interactions across different company-sourced reporting formats, such as numbers, narratives and
visual aspects. Mouselli, Jaafar, & Hussainey (2012) consider accruals quality versus disclosure quality, concluding from the
positive relationship that they are substitutes. Francis, Nanda, & Olsson (2008) find that companies with good earnings quality
have more expansive voluntary disclosures (a complementary relationship). In an IPO setting, Aerts & Cheng (2011) find
stronger earnings management to be associated with more intense assertive causal disclosure and less frequent defencive
causal disclosures. Interdependencies between text and pictures are considered in the seminal work by Mitchell (1994).
Fourth, interactions may exist across channels (written text, speech and non-verbal communication). Fifth, these channels
are associated with a range of information sources, such as the corporate annual report, the corporate website, and conference
calls. Kothari, Shu, & Wysocki (2009) examine the tone across management, analyst and business press communications,
while Drake, Roulstone, & Thornock (2012) investigate Google searches around earnings announcements. Sixth, interactions
between organisations may occur. Based on survey data from US CEOs and journalists, Westphal, Park, McDonald, & Hayward
(2012) use social exchange theory and the social psychological literature on persuasion (impression management) to explain
why, in communications between CEOs and journalists, CEOs of other firms provide positive statements about a focal CEO’s
leadership and attributions statements. Finally, studies into temporal interactions can involve diachronic (i.e. longitudinal)
studies, such as Ditlevsen’s genre-based study of the evolution of one company’s annual reports to dialogic studies that
examine turn-taking by multiple parties (e.g. Brennan, Merkl-Davies, & Beelitz, 2013).
Using an interpretive approach, Brennan & Merkl-Davies (2014) study interactions between press releases by Greenpeace
and six companies cited negatively in relation to wastewater discharge, drawing upon Bakhtin’s notion of dialogism (i.e. that
all communications are embedded in past and anticipated future communications).
5.8. Observations based on changes vs. levels
While a great deal of the positivist literature examines cross-sectional variation in reporting choices, a focus on change can
offer a more powerful research design. This is partly because, due to inherent inertia, language changes may exhibit ‘stickiness’ e a psychological effect known as status quo bias (Samuelson & Zeckhauser, 1988). In relation to narrative material,
Brown & Tucker (2011) focus on changes in MD&A disclosures while Depoers & Jeanjean (2012) investigate company-specific
determinants of the decision to stop reporting a voluntary disclosure item. Beattie & Jones (2000) explore the relationship
between performance changes and changes in the primary graphical decision (whether or not to include a graph of a key
financial performance variable). Small-sample longitudinal case studies are also undertaken (Campbell & Abdul Rahman,
2010). Economic models of the intertemporal dynamics of corporate voluntary disclosures have been developed (Einhorn
& Ziv, 2008). What would be valuable would be the development of a parallel understanding of ‘narrative dynamics’ that
included the investigation of issues such as path dependency and stickiness. Of course, the recognition that each narrative is
embedded within a broader temporal set of narratives is, as noted earlier, central to an interpretive/critical view of narrative.
5.9. Level of theorising
A theory can be viewed as a statement of relations among concepts within a set of boundary assumptions and constraints
(Bacharach, 1989). While some view metaphor as a precursor to theory (insofar as the imagery, i.e. properties in common,
helps the theorist derive propositions about the phenomenon being studied) (Bacharach, 1989), others view the use of
metaphor as a first (lowest) level of theorising. In a significant paper targeted at qualitative management accounting researchers, Llewellyn (2003) identifies five levels of theorising: metaphor; differentiation; conceptualisation; theorisation of
settings within a context; and context-free ‘grand’ theorising. She argues that qualitative research underpins the ‘“conceptual
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125
framing” of organisational actions, event, processes and structures’ (p. 662). This permits theorising at levels below grand
theory. In particular, the metaphor is argued to be useful at the lowest level of theorising, as it links the unfamiliar to the
familiar, creating meaning and significance through ‘picturing’. For example, Page (2005) challenges entrenched views of the
nature and role of the conceptual framework in accounting by comparing two metaphors e that of the search for the holy grail
(the entrenched view) and that of hunting the snark (an alternative view). In relation to accounting narratives research,
studies conducted at each of these levels are desirable.
5.10. Theory generation and case research
The distance between conceptual constructs and measurable variables is generally large in studies using large samples
(Eisenhardt & Graebner, 2007). In financial reporting research, it is difficult to create good proxies for many key variables (e.g.
discretionary accruals as a measure of earnings management; Big four auditor as a measure of audit quality). Rich cases have
powerful theory-generative properties (Weick, 2007), persuasive power (Siggelkow, 2007) and the ability to create framebreaking insights (Bansal, 2013). Results are also potentially generalisable across populations, if not within populations
(Tsang, 2013). There are several interpretive narrative case studies, especially in the area of CSR reporting, that demonstrate
strong linkages between the data and the theoretical concepts (e.g. Brennan & Merkl-Davies, 2014; Brennan et al., 2013; Laine,
2009; Mäkelä & Laine, 2011).
5.11. Theoretical pluralism
A debate exists within the management and management accounting literature regarding theoretical pluralism (see, for
example, the interchange between Jacobs, 2012; 2013; Modell, 2013) and the potential of blended theory (especially at the
level of theorisation of context) to produce new understanding (Bansal, 2013; Okhuysen & Bonardi, 2011). This debate
highlights some of the difficulties of pluralism, as well as the potential benefits, causing Jacobs (2013) to conclude with a plea
for theoretical serial-monogamy rather than serial promiscuity. Where theoretical lenses are combined, it is important that
the conceptual distance between the theory and the phenomenon being addressed is similar for each lens and that the
underlying assumptions of each are not too distant (Okhuysen & Bonardi, 2011). For example, although it is difficult to
combine microeconomic theory (which assumes self-interest and rationality) with other behavioural theories from psychology or sociology, economic theorists are beginning to include ‘other regarding’ aspects in their models (Festré, 2010) and
psychological theories have the potential to increase the explanatory power of archival studies (Koonce & Mercer, 2005). In
the European tradition, there is considerable potential from seeking to blend narrative theories and methodologies. For
example, Livesey (2002) blends rhetorical analysis with Foucauldian discourse analysis in her study of ExxonMobil’s public
relations advertorials on climate change. Rhetorical analysis is a widely used text analysis approach (e.g. Brennan & MerklDavies, 2014; Higgins & Walker, 2012. Critical hermeneutics is used by Prasad & Mir (2002) to explore the role of CEO letters in constituting the relationship between petroleum companies and OPEC.
5.12. Methods
Most extant positivist studies that use NLP (natural language processing) methods to study corporate annual reports use
Form 10-Ks produced by US companies, either in total or focussing on the MD&A. Federal securities laws require domestic
issuers to submit an ‘annual report on Form 10-K’, which gives a detailed overview of the company’s business and financial
condition in addition to the audited financial statements. Regulation SeK, part 229 provides the requirements applicable to
the content of the non-financial statement portions of Form 10-K (http://www.sec.gov/).46 Importantly, this data is available
to researchers in a structured, digitalised form that can be analysed by computer software with minimal further processing.
Researchers working on data from other countries face additional hurdles. Although the material is now available in digital
form the format is normally pdf. The first task is therefore to convert the material into text format (using, for example, a
software package such as Adobe X Pro) and insert bookmarks to delineate identifiable annual report sections.47 Future
research would benefit from the creation of freely available financial communications corpora48 such as those that exist in
other fields of study.
In relation to linguistic analysis, the commonly used software programmes have been developed in the discipline of
psychology for use on general-purpose text (General Inquirer, DICTION, Linguistic Inquiry and Word Count (LIWC), Leximancer, WordSmith AntConc, and WordStat (an add-on module for QDAMiner). However the wordlists developed for
general purpose use (such as the Harvard lists) or specialist use in other disciplines misclassify technical accounting and
46
Of the fifteen items, of particular interest is Item 7, the requirement for the MD&A. This requires a discussion of the company’s financial condition and
changes in financial condition (covering liquidity and capital resources) and also a discussion of the results of operations. Registrants are ‘encouraged, but
not required’ to supply forward-looking information, which are covered by the safe harbour rule for projections. For a detailed discussion of Form 10-K see
Beattie et al. (2008, ch. 2).
47
A group of UK researchers are currently working on this task as part of an ESRC-funded project (see http://ucrel.lancs.ac.uk/cfie/).
48
Corpora are large collections of computerised texts which have been carefully sampled in order to be representative of a particular language variety.
126
V. Beattie / The British Accounting Review 46 (2014) 111e134
Fig. 1. Research into accounting narratives.
finance words, making it important to develop specialist dictionaries, such as the one to measure financial sentiment
(Loughran & McDonald, 2011).49
This line of research also suffers from the generic problems of construct validity (DeFond, 2010) and inferring causality
from observed associations.
5.13. A research framework
To provide a framework for thinking about research on accounting narratives, it is useful to first think about the nature of
the research question being addressed. Possible questions include the following five broad categories50:
1. What is reported?
2. What explains observed practice, including interaction effects? i.e. why do narratives have the form and content that they
do?
3. How do author-narrators explain the existence, form and content of their narratives?
4. What are the consequences of observed practice?
5. What should be reported?
Fig. 1 provides an organising framework for the discussion. Each element will now be discussed in turn.
Research that addresses ‘what is reported’ sits at the centre of the framework, representing the central phenomenon of
interest. These studies are essentially descriptive in nature, and may focus on the topic content or the form of the narratives.
Many of these studies also seek to explain the described practice, using either positivist or interpretive/critical approaches.
One of three generic methods is normally applied e content analysis, linguistic analysis and/or discourse analysis. The
challenge is to identify linguistic (lexical) attributes/features of interest in the accounting context (Berger, 2011). Traditional
content-analytic studies have focussed on topic, quantity and quality. Recent NLP studies have focussed on readability, tone
and markers of deception, while recent discourse studies have examined impression management, storytelling, sensemaking
and sensegiving. These features can be thought of as a matrix of research possibilities, although only some combinations may
be of theoretical or practical interest. For example, Schleicher & Walker (2010) combine tone and futurity by examining bias in
the tone of forward-looking disclosures.
49
For example, the words ‘tax’ and ‘cost’, which are included in the Harvard negative wordlist, are not generally negative in financial contexts.
It proved to be extremely difficult to arrive at a set of research questions that encompasses both research approaches fully. Readers should note that Fig.
1 reflects my positivist leanings, since it has arrows suggesting the existence of general causal relationships. The set of research questions posed by critical
accounting researchers would undoubtedly look quite different to those in Fig. 1.
50
V. Beattie / The British Accounting Review 46 (2014) 111e134
127
Explanations of observed practice can exist at various levels (micro, meso and macro). Research of each type exists both for
positivist disclosure research and interpretive/critical narrative research. In positivist disclosure research, Bamber, Jiang, &
Wang (2010) investigate the influence of managerial style on the disclosure of earnings forecasts (a micro level study).
Foster, Kasznik, & Sidhu (2011) examine the relative influence of factors at all three levels (company, industry and country) for
equity valuation. Country-level effects attributable to investor protection regulation are identified by La Porta, Lopez-deSilanes, Shleifer, & Vishny (1998). There is growing evidence that narrative disclosure is superior under a mandatory
regime (Aerts et al., 2013; Beattie et al., 2008; Li, 2010). Macro level factors (such as social norms linked to religion) are found
to influence financial reporting quality (Dyreng, Mayew & Williams, 2012). In positivist linguistics research, the focus to date
has been on meso-level studies. In interpretive/critical narrative research, the analysis can refer to the micro/meso level of
specific texts or the macro-level analysis of the relationship between discourse and social orders (Alvesson & Kärreman,
2000). It is suggested that research into accounting narratives would benefit from multilevel research designs, such as
exist in the management field (Hitt, Beamish, Jackson, & Mathieu, 2007). The investigation of author-narrator explanations of
why they provide narratives and why they say what they do, are the province of the interpretive/critical approach.
The consequences of narrative practice have been studied at the level of the individual (experimental methods, e.g. Cianci
& Kaplan, 2010), aggregate capital market (archival methods, e.g. Yang, 2012) and society (critical discourse analysis, e.g. Craig
& Brennan, 2012). Thus, these consequences of observed practice can, as for explanations, exist at various levels (micro, meso
and macro).
In relation to what should be reported, from the positivist camp DeFond (2010, p. 404) notes that earnings quality research
has influenced policy. In the critical camp, Fairclough (2010) points to the strong normative focus of critical discourse analysis,
although he does not specifically discuss financial communication. As our understanding of narrative reporting develops, this
understanding may be used to inform evidence-based policy-making (Buijink, 2006).51
It is suggested that research into accounting narratives would benefit from the use of mixed methods and theoretical
pluralism. Corpus linguistics and discourse analysis are ‘approaches’ to research, embodying a set of theories, methodologies
and methods. The former is predominantly quantitative in its methods whereas the latter is predominantly qualitative.
Recent studies outside the accounting domain have, however, shown that the combination of both approaches produces a
useful methodological synergy (Baker et al., 2008). Corpus analysis can uncover statistically significant patterns and identify
representative text for further analysis. The findings from this follow-up qualitative analysis may, in turn, suggest additional
investigation at the corpus level. Such a positive, iterative loop will likely draw upon a range of theoretical lenses.
In considering the influences and effects of accounting narratives, it is important to recognise the presence of a strong
feedback loop. Strategic choices in management narratives can be a response to negative behaviours by stakeholders (e.g.
Brennan & Merkl-Davies, 2014; Westphal & Graebner, 2010). More fundamentally, key stakeholders (e.g. fund managers, sellside analysts and regulators) are beginning to develop and use NLP algorithms to mine corporate communications for incremental information relating to various aspects of performance.52 Some are also engaging in close reading of the text to
detect to detect deception, evasion, uncertainty and linguistic hedging. Once preparers realise this and discover the key
language features being monitored by their audiences, they are likely to engage in ‘reverse engineering’ and produce language
that exhibits the features that will produce the desired analytical outcome. Of course, this erodes the incremental information
content or other impact of the narratives.
6. Conclusion
Accounting narratives offer a very rich and complex set of inscriptions and represent a distinct genre of business communications (Rutherford, 2005; 2013). They are often poly-authored multipurpose communications with multiple recipients.
They may be written or spoken and may be channelled via traditional media or emergent social media. Both preparer and user
perspectives on accounting narratives may be viewed as ‘situated social practice’ (Chua, 2007).
Laughlin’s (1995) paper on middle range thinking called for accounting researchers to develop greater theoretical and
methodological awareness. In the fields of management, organisation studies, management accounting and corporate social
reporting, there is a strong tradition of reflection on such matters and the value of interpretive and critical research in wellestablished.53 This is perhaps less the case in the area of financial accounting. The dominant method of generating research
questions in the financial reporting field seems to be an easy and safe ‘gap-spotting’ approach (Sandberg & Alvesson, 2011).
While methodological debates continue to infuse the management accounting research agenda, outside the field of CSR
reporting there is less concern with such debates in the field of financial accounting. Greater appreciation of what both types
of research (positivist and interpretive; archival and field research) may allow the boundaries of each tradition to become
more permeable, generating new understandings.54 We have barely scratched the surface of the possibilities for financial
reporting research presented by further ‘borrowing’ from other disciplines. We can also be inspired by research on business
51
There is, however, acknowledged to be a significant research-practice gap, with the spheres of practice, academe and policy being characterised as
‘worlds apart’ (Laughlin, 2011).
52
Anecdotal evidence indicates that large investment banks, hedge funds and the SEC are developing and using such analytics.
53
In the tradition of Hines (1988), Lehman (2012) notes the power of critical research in ‘creating visibilities and breaking silences’, p. 136).
54
It is noted that many would argue that the underlying assumptions of each tradition are incommensurate; I do not personally take this view.
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and financial narratives that is undertaken by non-accounting researchers and published outside the accounting journals (e.g.
Ditlevsen, 2012; Jameson, 2000; MacLean, 2012). Encouragingly, there are signs of a crack in the stranglehold that positive
accounting research has in North America. A recent special forum in one of the AAA section journals looked at sociological
perspectives of accounting and showcased field studies (Covaleski & Dirsmith, 2012).
A range of key issues to be addressed by future research has been identified. First it is important to conceptually
distinguish the identity and role of the narrative contributor (principal, author or animator). Second, we need to emulate the
earnings management literature and establish ways of measuring benchmark norms for a variety of language choices, so that
the ‘abnormal’ element of the choices can be identified (and interpreted through the lens of impression management or an
alternative lens). It may also be possible to identify a range of narrative strategies such as linguistic smoothing and ‘big bath’
strategies. Third, the investigation of change in narrative choices over time (narrative dynamics) will enrich our understanding of the influences on these choices (such as path dependency and stickiness). A fourth issue relates to the consideration of a range of potential interaction effects, such as how real transaction choices are related to narrative choices, how
narratives choices are related within a single reporting bundle and across formats and communication channels, and how
narrative choices from one source are affected by communications from other sources.
In terms of theory, it is argued that research into accounting narratives will benefit from theorising at many levels (micro,
meso and macro), both separately and in combination. Such research would also benefit from the theory-generative properties of rich case-based research and from the application of suitably blended theoretical perspectives. In terms of methods,
researchers await the extended production of a range of accounting narratives in a structured, digitalised text format and the
creation of freely available financial communications corpora such as those that exist in other fields of study. Overall, it is
suggested that research into accounting narratives would benefit from the use of mixed methods and theoretical pluralism.
Corpus linguistics and discourse analysis are ‘approaches’ to research, embodying a set of theories, methodologies and
methods. If combined, accounting narratives may prove pivotal in bringing together researchers from Chua’s three worldviews. Attributable to the mega-trends of digitalisation and data analytics, the chasm that has traditionally separated
quantitative ‘surface data’ approaches from qualitative ‘deep data’ approaches is being bridged (Manovich, 2012). This is
exemplified by the combination of corpus linguistics approaches with (critical) discourse analysis (Baker et al., 2008).
One unintended consequence of research to date is that key stakeholders are now systematically analysing accounting
narratives to extract incremental information relating to various aspects of performance. Preparers may soon engage in
‘reverse engineering’ to produce language that exhibits the features that will produce the outcome desired by preparers. This
type of game-playing will erode the impact of the narratives.
One might jokingly wonder if there have been so many ‘turns’ in the research literature that we are now rather lost and
disoriented as a community of scholars. Beginning from the early days of normative theorising which dominated in the 1940s
through to the 1960s, we have witnessed the ‘scientific’ turn that gave us positivist accounting research, the ‘narrative’ turn, the
‘visual’ turn and (in management accounting) the ‘practice’ turn. Certainly we have been a fractured community, with little
dialogue across methodological divides, especially in financial accounting and auditing (compared to management accounting).
As explained in Section 2, Chua’s (1986) article was very helpful to me at the start of my career and I was able to place myself in the
mainstream camp at that time. I knew where I belonged, which is always a source of comfort. As the years have passed, I have
been increasingly drawn to behavioural as well as economic explanations of preparer, user and auditor choices (the ‘actors’ in the
financial reporting activity). I have come to appreciate the power of method and theory triangulation as I have combined
qualitative and quantitative research and explored various theoretical perspectives. I have sought to understand the practice of
accounting by means of interviews and case studies (e.g. Beattie et al. 2001; 2011). Am I becoming an interpretive researcher?
This is a paradigm that sits rather awkwardly between mainstream and critical approaches. I was struck by Armstrong’s characterisation of interpretivist research as ‘the midlife crisis of careerist academics’ (quoted in Cooper, 2008).
Irrespective of my present methodological location, I am as excited by accounting research as I was 30 years ago. The path
ahead in this journey is certainly not a straight one, and I cannot see clearly what lies ahead. However it is that which makes it
exciting, with the prospect of new paths unfolding and the opportunity to make choices at crossroads.
My main concern lies in whether or not we will have a community of accounting scholars in the UK to undertake this
exciting programme of work. Recent work with Sarah Smith (Beattie & Smith, 2012b) into PhDs and the academic labour
market reveals a worrying shortage in the accounting discipline. I am glad this issue is being investigated by BAFA and other
academic associations and hope that the other key constituent groups (the accountancy profession, including the professional
bodies and the accountancy firms) will act soon.
Acknowledgement
I thank two anonymous reviewers for their thoughtful, detailed and highly constructive comments on a previous draft of
this paper.
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