Impression Management in Distressed Banking Annual Reporting Review
Author:
Jonathan Njoku
Kuwait-Maastricht Business School,
Kazima Street, Block 3, Dasma, Kuwait
E-mail: jonathan@kmbs.edu.kw
Reviewer:
Murniati Mukhlisin
PhD Student, Adam Smith Business School
University of Glasgow, Scotland, United Kingdom
Senior Lecturer, Tazkia University College of Islamic Economics, Indonesia
E-mail: m.mukhlisin.1@research.gla.ac.uk
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Summary of the paper
The objective of this paper is to critically explore how impression management (IM) was
used in Oceanic Bank to hide the going concern uncertainties that the bank faced in 2009.
Firstly, the author elaborates theories on nature, essence, and effects of the impression
management. Secondly, the author presents cases on the impression management with a
focus study on the Oceanic Bank.
IM in this study is regarded as corporate narratives used by management to exaggerate
financial prospect and diminish bad news. In essence, IM is to distort perception of
outsiders on the achievements and prospects of an entity, through manipulation of the
presentation of corporate reporting. Several theories explain how IM is exercised i.e.
agency theory, attribution theory, signalling theory, legitimacy theory, and institutional
theory.
The conflict between agent and principal often creates motivation for managers to
execute IM. IM has been used negatively to influence share price, misallocate capital
through lowering the cost of capital, and shore up managerial compensation through
enhanced share performance. In order words, IM mediates manipulation for earning
management by several ways i.e. 1) making the narratives difficult to read, 2) emphasizing
good news through numerical, words, and themes in visual, and structural methods, 3)
choosing favourable benchmark and selective disclosure. However, the information must
be credible and for that, it must be plausible, timely, complete, accurate, and congruent
with managers’ personal incentives. Unlike agency theory, the signalling theory suggests
other type of IM explained by managers of well performing firms who are more
transparent. On the other hand, under legitimacy theory, IM explains reactions of firms in
facing legitimacy threats. Under institutional theory, the firms use IM to conform with
international expectations and norms in order to reduce internal and external inspections
and to respond to institutional pressures.
The effects of IM are perceived as discretionary disclosure that enhances the role of
financial reporting in bridging information asymmetries between managers and outsiders,
and as discretionary disclosure that exploits information asymmetries between managers
and outsiders. Several theories explain the effects of IM on these two conflicting thoughts
i.e. economic utility theory and behavioural theory. The economic utility theory suggests
that sophisticated investors are able to filter information and they are not vulnerable to IM
thus there is no harmful consequences towards the capital market. In this case,
discretionary disclosure could reduce asymmetric information. However, under distressed
banking, motivation to hide bad news in order to keep the firms alive would eventually
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cause the share prices to fall. The utility theory holds assumption that not all users of
annual report are sophisticated hence they are emotional. Behavioural theory on the other
hand suggests that under market inefficiency, investors become appealing towards both
substance and form of information when making decisions, therefore IM provokes share
price reaction. This is the main focus of the study.
The author selected Oceanic Bank as a case study to analyse IM through forms and
contents of the Chairman’s statement in year 2006 and 2008 (the year when the bank was
considered healthy and the year when the bank was announced distressed). Oceanic Bank
was one the leading banks in Nigeria, succeeded to escape issues on capital requirement
during 2005 banking consolidation screening. The narratives in the chairman’s statements
are scrutinized using several signals such as obfuscating bad news through making text
difficult to read, using pervasive language, emphasizing good news by manipulating
information, emphasizing through words and themes, emphasizing good news by visual
and structural ways, choosing favourable benchmark, choosing favourable earnings,
shifting the blame, and claiming positive outcomes.
Using content analysis method, the finding suggests that the Chairman’s statements
tend to obfuscate bad news by making text more difficult to read, using persuasive
language to disguise the firms from the users, emphasizing goods news, emphasizing
positive financial performance, choosing favourable benchmarks and favourable earnings,
and finally shifting the blame and claim positive outcomes. The author proved that the
theories on IM work under the ‘story telling’ in the CBN Chairman’s Statements.
Comments:
This is interesting paper that provides comprehensive debates on several theories related to
IM. However, the analysis part is not sufficient to contribute to theoretical development
where the author only confirms the finding based on the available theories. The following
comments may be useful to improve the paper.
1. Literature
The author emphasized on theories on how IM is being exploited to satisfy the interest of
the managers. Different types of ‘storytelling’ described by the author are regarded as
different types of plots, characters and twists (Gabriel, 2000, p. 239) and they are capable
of stimulating strong emotions of sympathy, anger, fear, anxiety and so forth. Perhaps this
can enrich the discussion in the literature part that wrap all themes as types of storytelling.
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2. Methodology and Result
The author adopts critical ethnography that attempts to examine context specific social and
cultural uses of accounting in organization. This type of ethnography work is very
challenging such as to encounter several weaknesses of this methodology among others;
limiting factors of language, the morphing effects of context, imperfections of the
researcher, and ethical considerations surrounding the verification and ownership of data
Rudkin (2002).
A more systematic content analysis is one way to reduce the limitation on language
and effects. For instance, the analysis in Section 4 is quite wordy and requires more effort
for readers to understand the plots sentence by sentence. In this case, the author may need
to conduct a more systematic content analysis (see Krippendorff (2012), Weber (1990)).
The following description is one way to perform a systematic content analysis by first,
arrange coding rules, see example below.
Example of Coding Rule
No.
Elements
1
Obfuscate bad
news by
making text
more difficult
to read
2
Use persuasive
language to
disguise the
firms from the
users
Emphasize
goods news
Emphasize
positive
financial
performance
Choose
favourable
benchmarks
and favourable
earnings
Shift the
blame and
claim positive
outcomes
3
4
5
6
Definition and
Characteristics
Presentation of
statement that
creates difficulty
for users to
understand i.e.
paragraph, font
size, font type.
Coding Rule
The presentation
that makes
readers difficult
to read should
be coded (one
per sentence).
Number
10 (?)
Examples
Pages 11 to 17 in 2008
statement were displayed
in single and double
column (mixed format).
The following steps may involve in this method: conduct reliability process, code
nodes and sub-nodes (if any), run result, run statistical significant test, and lastly analyse
the result. NVivo software is helpful to ensure coverage of the contents.
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3. Implication of the result
The author may explore contribution to the theory on IM. For instance, what is the main
theme out of several IM themes used to examine CBN? Are they overlapping, for instance,
Gray, Kouhy, and Lavers (1995) argue that political economy, legitimacy, and
stakeholder’s theory are overlapping theories. What is the main theory that governs several
theories outlined by the author?
References
Gabriel, Yiannis. Storytelling in Organizations: Facts, Fictions, and Fantasies: Facts, Fictions, and
Fantasies. Oxford University Press, 2000.
Gray, R., Kouhy, R. and Lavers, S. (1995), "Corporate social and environmental reporting: a review of the
literature and a longitudinal study of UK disclosure", Accounting, Auditing & Accountability
Journal, Vol. 8 No. 2, pp. 47-77.
Krippendorff, K. (2012), Content analysis: An introduction to its methodology, Sage.
Rudkin, K. (2002), "Applying critical ethnographic methodology and method in accounting research", in
Critical Perspective on Accounting Conference, New York.
Weber, R. P. (1990), Basic content analysis, Sage.
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