CULTURAL DIFFERENCES IN SELF-SERVING BEHAVIOUR IN
ACCOUNTING NARRATIVES
ABSTRACT
In the letter to the shareholders management renders account of the activities in the
preceding year by providing explanations for the results and, frequently, looks
forward to the next year. These are the stories that narrate the successes and failures
of individuals (e.g., the CEOs), organisational subunits, and the entire company.
Attribution theory hypothesises on the bias in these stories and expects management
to be self-serving by attributing positive developments to themselves and negative
developments to the environment. Indeed, this so-called “self-serving attributional
bias”, though originating from social psychology, has also been shown in the context
of organisational outcomes including the letter to the shareholders of Western
companies. Recent social psychological research on this self-serving attributional bias,
however, has revealed that there are cultural differences in these attributional
patterns. More specifically, this cross-cultural research revealed that the self-serving
bias is typically found in western, individualistic cultures, but is to a lesser extent
present in eastern, collectivistic cultures. Therefore, in line with these findings one
would expect this self-serving attributional bias to be more prevalent in annual
reports of companies from individualistic countries than those from collectivistic
countries. In this paper we will report some results based upon a study of letters to
the shareholders of American and Japanese companies.
Keywords: culture, accounting narratives, international financial accounting.
CULTURAL DIFFERENCES IN SELF-SERVING BEHAVIOUR
IN ACCOUNTING NARRATIVES
INTRODUCTION
In the CEO’s letter to the shareholder management renders account of the
company’s activities of the preceding fiscal year by providing explanations for the
obtained results. These are the stories that narrate the successes of the individuals
(e.g., the CEO), organisational subunits, and the entire company (Fiol, 1989). It is
not inconceivable that the board will use this opportunity to interpret events to its
own benefit (Hines, 1988; Ginzel, Kramer, and Sutton, 1993), also because the
annual report seems to be a public relations instrument aimed at nurturing a certain
corporate image (Hopwood, 1996). For example, Preston, Wright, and Young (1996)
suggested that annual reports are designed to send the right message, i.e., to enhance
the story of corporate performance contained in the financial statements or to signal
or, maybe more likely, to detract attention away from poor performance. Indeed,
historical data from large UK corporations seem to confirm that “corporate
executives use annual reports as part of an image management function to influence
external stakeholders” (Lee, 1994: 215).
Research shows that the explanations offered by individuals (and groups as
well) are self-serving: individuals are willing to take credit for successful outcomes,
but are reluctant to take responsibility for unsuccessful outcomes. This so-called
“self-serving attributional bias”, though originating from social psychology, has also
been shown in the context of organisational outcomes (Johns, 1999) including the
letter to the shareholders. The research mainly focused on the United States
(Bettman and Weitz, 1983; Staw, McKechnie, and Puffer, 1983; Salancik and Meindl,
1984; D’Aveni and MacMillan, 1990; Clapham and Schwenk, 1991), with a notable
exception of Belgium (Aerts, 1994). In general these studies showed that self-serving
behaviour is also present found in annual reports, although Aerts only found Belgian
companies claiming successful results.
Recent research within social psychology, however, suggests that the
explanations that people provide for events may depend upon their cultural
background and that, as a consequence, the self-serving attributional bias is less
universal or robust as it was thought to be. Indeed, some social scientists suggested
that the self-serving attributional bias might be more typical for western societies
than for eastern societies (Choi and Nisbett, 1998; Choi, Nisbett, and Norenzayan,
1999; Menon, Morris, Chiu, and Hong, 1999). Furthermore, Gray’s (1988) theory and
its recent validations seem to suggest that financial reporting to a certain extent is a
reflection of a nation’s cultural background (for an excellent recent overview see
Chanchani and MacGregor, 1999). Therefore, the central research question of this
paper is whether such a cultural difference may also be found in explanatory
behaviour in annual reports. It presents some preliminary findings based on a study
of annual reports of American and Japanese companies.
The remainder of the paper is organised as follows. In the second paragraph,
attention is paid to the theoretical background when studying explanatory behaviour
in annual reports in general, while also some previous research, mainly using data
from the Eighties and focussing on western nations, are briefly addressed. The third
paragraph covers some of the recent findings within social psychology indicating that
the self-serving attributional bias may be less profound in eastern nations. It also tries
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to provide possible reasons for this divergence. The fourth paragraph contains the
propositions that will be tested in this paper and, in addition, describes the research
method used. Paragraph five contains some of the preliminary results of this study.
The paper ends with a short discussion and conclusion section.
ATTRIBUTION THEORY AND IMPRESSION MANAGEMENT
Attribution theory provides the basis for studying explanatory behaviour in annual
reports. It consists of a number of social psychological ideas that focus on perceived
causality, i.e., people’s ideas about causes of events. The work of social psychologist
as Heider (1958) and Weiner (1971, 1985, 1986) resulted in a taxonomy that can be
used to study the explanations people offer. Frequently, a two-dimensional taxonomy
is used consisting of “locus of causality” (indicating whether a cause is internal or
external to the person) on the one hand and “stability” (indicating whether a cause is
temporal or might persist over time) on the other. Using this taxonomy, researchers
were able to reveal certain tendencies in people’s explanatory behaviour, not only in
experimental settings but also under more natural conditions, e.g., newspaper stories.
People are “self-enhancing” if it involves successful outcomes, implying that they will
take credit for it by saying that they were personally responsible for the outcome.
However, if it involves unsuccessful outcomes, i.e., failures, people show “selfprotecting” tendencies, implying that the environment or something beyond their
control, e.g., bad luck, is held responsible for the outcome.
These tendencies have also been studied and shown in organisational
contexts in general (Johns, 1999), including accounting narratives as indicated
previously. In the mid-Eighties and early-Nineties several American researchers,
predominantly from the organisational domain, applied these social psychological
ideas to annual reports. The studies of Bettman and Weitz (1983), Staw, McKechnie,
and Puffer (1983), Salancik and Meindl (1984), D’Aveni and MacMillan (1990), and
Clapham and Schwenk (1991) indicated that managers are very alike ordinary people:
they are, generally speaking, inclined to take credit for positive results, e.g., an
increase in profits or sales, while negative outcomes are blamed onto the
environment. Apart from using such acclaiming (e.g., enhancements) and accounting
tactics (e.g., excuses and justifications), managers also are able to obfuscate possible
reasons for an outcome. Aerts (1994) suggested that a cause-effect relation might be
expressed in accounting-technical terms, e.g., “profits declined as results of an
increase of the financial costs”. What is typical of such an explanation is that it
remains unclear whom is responsible for the outcome and that it is open to multiple
interpretation. In a sense, these accounting explanations are used to avoid the need
of giving explanations. Given these characteristics, it is no surprise that Aerts’ study
revealed that managers show a preference to explain negative outcomes in
accounting-technical terminology, whereas positive outcomes are explained more in
clear-cut causal language where responsibility may be easily assigned. In a sense, this
accounting bias and the self-serving tendency can be seen as complementary. Firms
show a preference for using self-enhancing claims when explaining positive
performance, while they prefer to use technical-accounting language to account for
negative performances – thereby hoping that their responsibility for the failure is
mystified (Aerts, 1991, 1994).
By the use of such accounting, acclaiming and obfuscation tactics individuals
attempt to control the impressions others form of them (Leary and Kowalski, 1990).
Although people are not always aware of the impressions they convey, a certain
strategic behaviour can be assumed. Indeed, the claim that impression management
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is instrumental (Goffman, 1959; Schlenker and Weigold, 1992) or purposive, goaldirected behaviour (Bozeman and Kacmar, 1997) may be particularly true for
organisations and their members. Within an agency theoretical setting the use of
impression management, and self-serving explanatory behaviour in particular, may be
expected beforehand. Managers, guided by their self-interests, will highlight the
positive whereas as little attention as possible is paid to negative outcomes. Indeed,
Abrahamson and Park (1994) refer to two important motives to use such a
concealment strategy. Firstly, managers do not want others to become aware of such
negative outcomes not only because this may affect their bonuses, but also because it
may impinge on their reputations. Secondly, as disclosure of this kind of information
usually leads shareholders to sell their share, this results in a decrease in firm’s value
and may make it more vulnerable to a hostile take-over. The use of such impression
management tactics seems especially important if a person’s behaviour is public
(Leary, 1996). Indeed, Fiol (1995) revealed such a private-public effect in an
organisational context. She compared managers’ attributions in external
communication (i.e., the letter to the shareholders) with those in internal
communication (i.e., internal planning documents). Using content analysis she found
that managers’ private and public statements are not necessarily converging. She
found that threats (i.e., negative, uncontrollable causes) are more frequently used in
internal documents than in external documents, while in the case of opportunities
(i.e., positive, controllable causes) more or less the opposite applies. Using a same
line of argument, Aerts and Theunisse (2000) investigated whether listing status
influenced attributional behaviour in accounting narratives. Using a recent sample of
Belgian letters to the shareholders, they were able to show that listed companies are
both more self-enhancing and self-protecting than non-public companies when
explaining positive and negative accounting outcomes, respectively.
However, there are limits to be overly self-serving. The impressions
conveyed have to be credible: “self-serving tendencies can be effective as long as the
message they represent is plausible and the messenger remains credible” (Aerts and
Theunisse, 2000: 6). Credibility is one of the most crucial aspects of disclosure
effectiveness (Gibbins et al., 1990). In addition, the financial report is generally
speaking a publicly available document and is used by many constituencies in their
decision-making process. These constituencies, such as, e.g., institutional investors,
shareholders, employees, creditors, banks, et cetera, are expected to read the financial
report carefully as well that they will confront it with information from other sources,
e.g., their own knowledge, press releases, journal articles, and analysts’ forecasts.
Because of this public scrutiny gross inaccuracies may be detected quickly (Bettman
and Weitz, 1983). As these constituencies possess other information resources than
the annual report as well, it may be possible that the explanations offered by the
management, e.g., a considerable increase in profits due to good strategic policy, are
viewed differently by them. So management always runs the risk that a part of their
audiences may not accept its view of the events.
CULTURAL DIFFERENCES IN SELF-SERVING BEHAVIOUR
In the previous paragraph we discussed a tendency that both ordinary people and
managers have: they prefer to claim positive outcomes, whereas negative outcomes
are blamed onto the environment. Although people across cultures generally show a
self-serving bias, research also indicates that there is a pervasive difference between
western cultures (notably the United States) and eastern cultures (mostly Japan) (e.g.,
Kashima and Triandis, 1986; Morris and Peng, 1994; Smith and Bond, 1996; Lee and
4
Seligman, 1997; Semin and Zwier, 1997). All these studies, using different methods
and subjects, arrived at the same, general conclusion: the self-serving bias was found
more in western cultures than in eastern cultures. On the one hand, Americans are
more than eastern subjects inclined to explain events in terms of dispositional factors,
and typically when it involves successful outcomes implying that people from eastern
cultures are more modest in the attributions they make. On the other hand, people in
eastern cultures are more inclined to assume personal responsibility for a failure than
Americans do: especially Japanese, but also Indian and Chinese, respondents showed
a self-deprecating tendency. For example, Menon and her colleagues (1999) used
actual newspaper stories related to business scandals to establish such cultural
differences. One of the scandals involved the rogue trading by Nick Leeson leading
to the collapse of Barings, Britain’s oldest bank. Comparison of the attributions
made in an American newspaper (The New York Times) and in a comparable Japanese
one (Asahi Shimbun), showed the same pattern as previous researchers found in
experimental settings. They found that the American newspaper referred more
frequently to the individual than the organisation as the cause of the financial scandal,
the Japanese newspaper, on the other hand, referred more to the organisation as a
possible cause.
From the social psychological literature it seems that two interrelated aspects,
viz. construal of the self and communication styles are used to explain differences in
attributional patterns (e.g., Gudykunst and colleagues, 1986, 1996, 1997; Triandis,
1989, 1995; Markus and Kitayama, 1991, 1994; Kagitçibasi, 1997; Semin and Zwier,
1997). Both aspects are reflections of differences in individualism, i.e., differences in
patterns of social relationships. In a collectivistic culture as Japan, social ties and
groups are very important. In contrast, in an individualistic culture as the United
States, the person as a separate entity is more important, while the ties between
individuals are loose as well (e.g., Hofstede, 1984; Triandis, 1995). These differences
are clearly present in the construal of the self, which defines how a person perceives
him- or herself vis-à-vis another. Following Markus and Kitayama (1991, 1994) it is
possible to make a distinction between the independent and the interdependent
construal of the self. The independent construal dictates that a person is independent
from others and an emphasis is on the expression of one’s unique attributes, and is
typical for the individualistic, western cultures. In contrast, in the interdependent
construal of the self, the person is regarded as not separate from the social context
but as more connected to and less differentiated from others (Markus and Kitayama,
1991: 227). Evidently, this construal predominates in eastern, collectivistic cultures.
Differences in the view of the self have implications for people’s verbal behaviours
(Markus and Kitayama, 1991) and their definition of self-esteem (Markus and
Kitayama, 1991, 1994; Nurmi, 1992; Heine and Lehman, 1997). As the focus in the
independent view of the self is on one’s own person it is logical that outcomes are
explained in dispositional terms (Cousins, 1989; Markus and Kitayama, 1991; Morris
and Peng, 1994; Lee, Hallahan, and Herzog, 1996). In addition, self-esteem in
individualistic countries requires that one’s uniqueness is stressed and that inner
attributes are expressed (Markus and Kitayama, 1991, 1994). This will lead to selfenhancing behaviours. In collectivistic countries, on the other hand, the focus is on
the social context in which one is operating. Therefore, situational or contextual
attributions are expected. Besides, stimulating self-esteem is achieved in a different
way than in individualistic countries. Markus and Kitayama (1991, 1994) note that
positive feelings about the self should derive from fulfilling the tasks associated with
being interdependent with relevant others: belonging, fitting in, occupying one’s
proper place, engaging in appropriate action, promoting others’ goals, and
5
maintaining harmony. Hence, in these nations there is a “collective self-esteem”
(Kagitçibasi, 1997; Crocker and Luhtanen, 1990). Therefore, it should not be
surprising that self-enhancement or self-promotion are perceived negatively in the
Japanese culture (Markus and Kitayama, 1991). In these cultures modesty is the norm
reflecting the influence of Confucius (Heine, Takata, and Lehman, 2000). Indeed,
Kitayama et al. (1997) and Akimonto and Sanbonmatsu (1999) argue that the fact that
people in eastern societies are more sensitive to negative self-relevant information
than people from western cultures, does not imply that they are low(er) in selfesteem. Rather, such a kind of behaviour has positive consequences in eastern
cultures: it serves to affirm one’s belongingness to a group and can be seen as part of
a strategy of self-improvement (Meijer and Semin, 1998: 17). Therefore, it may be
argued that the modesty and self-deprecating tendency typically found in the
Japanese culture is the result of a consideration of others. Otherwise stated, the
Japanese seem to make sure not to deny others’ contribution to a success, and save
their face by not blaming them in any way for a failure, also because blaming others
would disrupt harmony in a relationship (Meijer and Semin, 1998: 15). Another
related difference between the Americans and the Japanese involves differences in
self-evaluations. Whereas the Americans are more prone to information regarding
their positive characteristics, the Japanese have a more self-critical orientation (Heine,
Lehman, Markus, and Kitayama, 1999 and Heine et al., 2000). According to, e.g.,
Heine et al. (2000) the main reason for such a focus on one’s weaknesses is the
continue urge for self-improvement among the Japanese.
The second factor that may explain the differences in the amount of the selfserving attributional bias concerns the communication style. Hall (1977) proposed
that the context is important in understanding the messages people convey and that
the importance of the context varies across cultures. He distinguished high-context
and low-context communication cultures, although admitting that each culture has
elements of both. Following Hall (1977: 91) a high-context communication or
message is one in which most of the information is either in the psychical context or
internalised in the person, while very little is in the coded, explicit part of the message.
Zwier (1998) characterises this high-context style as indirect, implicit, and affective
(see also Gudykunst et al., 1996). A low-context communication is according to Hall
(1977: 91) just the opposite; i.e., the mass of the information is vested in the explicit
code. Therefore, it can be characterised as a direct, explicit and instrumental
communication style (Zwier, 1998; Gudykunst et al., 1996). Following Gudykunst
and Ting-Toomey (1988) and Singelis and Brown (1995) it appears that in
individualistic countries, e.g., the United States and most of north-western Europe
the use of low-context communication styles predominates. In collectivistic countries,
e.g., Japan, southern European and Latin American countries, however, the highcontext communication style is more apparent. Ehrenhaus (1983) related Hall’s
variations in context to attributional styles. He argued that members in high-context
cultures are attributionally sensitive and predisposed toward situational features and
situationally based explanations. Members of low-context cultures, on the other hand,
are attributionally sensitive to and predisposed towards dispositional characteristics
and dispositionally based explanations (1983: 263). In addition it also seems that in a
high-context culture, e.g., Japan, people in high positions are more prepared to
accept responsibility for a failure than similar people from low-context cultures, such
as the United States and the Netherlands (Hall, 1977). In the latter case frequently a
low(er)-ranked scapegoat is offered: Oliver North in the contra’s-Iran scandal is only
one famous example underscoring this. Finally, Triandis (1994: 184-185) also points
to several important differences in communication styles between individualistic (or
6
low-context) and collectivistic (or high-context) cultures. First, in individualistic
cultures the focus is on the communicator, also evidenced by the fact that the word
“I” is used frequently. In these cultures, attributes as credibility, intelligence, and
expert knowledge are important. On the other hand, in collectivistic cultures, the
focus to a larger extent is on the receiver. In addition, the word “we”, stressing
interdependency, is also emphasised, whereas ambiguity, subjectivity, generality, and
vagueness in communication is also more common. This could indicate that the use
of accounting-technical language (Aerts, 1991, 1994) would be even more prevalent
in these cultures than it is in an individualistic culture such as Belgium.
PROPOSITIONS AND RESEARCH DESIGN
As indicated in the introduction the primary aim of this paper is to explore whether
there is a cultural difference in annual reports regarding the explanations offered in
the CEO’s letter to the shareholders. Notwithstanding the exploratory mode of this
paper, we derived the following propositions based upon the review of the literature.
P1 Both Japanese as well as American companies will show a self-serving tendency to explain
organisational results in their letters to the shareholders, although this tendency is stronger in
the United States than in Japan.
P2 Japanese companies will ascribe positive outcomes (e.g., an increase in profits) to causes external
to the organisation to a larger extent than American companies in the letter to the shareholders
(“modesty tendency”).
P3 Japanese companies are more inclined to accept blame for a negative outcome (e.g., a loss or
decreasing profits) by ascribing it to internal causes than American companies (“self-deprecating
tendency” or self-criticism).
P4 The use of accounting-technical language to explain organisational outcomes is more prevalent in
Japanese letters to the shareholders (a high communication-context culture) than in those from
the United States (a low communication-context culture).
In this study we focused on large companies from the United States and Japan.
Three reasons justify this choice. First, and foremost, these countries represent
cultures with significant differences with regard to the individualism-collectivism
dimension, which constitute the most important factor influencing cultural
differences in attributional behaviour as previous research has indicated. Second,
previous studies within social psychology indicating such a cultural difference also
predominantly focused on these two countries. Lastly, the United States and Japan
are economically important countries, both in terms of representation of companies
in, e.g., the Fortune Global 500, as well as in terms of size of the stock market.
The selection of the companies from these countries was based on the 1999
Fortune Global 500 list, resulting in 30 companies from the United States and Japan
(the appendix provides a list of the companies included). Because of their specific
nature, we excluded financial companies beforehand. Of the companies included in
our study we used the most recent annual report. In large part the US companies had
a year-end of 31 December 1999, whereas the Japanese companies predominantly
had a year-end of 31 March 1999. All the reports included in this study were in
English, also for the Japanese companies. A survey distributed among investor
relations department of 70 large Japanese companies (selected from the Fortune
7
Global 500), to which 26 companies responded revealed that 19 or 73% distributed
an English annual report only among investors.
In order to be able to provide answers to the propositions posited earlier and
as we are dealing with narrative statements in annual reports we used content analysis,
which is a research method that uses a set of procedures to make valid inferences
from text (Weber, 1990: 9). This technique was also used in related studies by Aerts
(1991, 1994, 1996), Bettman and Weitz (1983), Clapham and Schwenk (1991),
Salancik and Meindl (1984), and Staw et al. (1983) (see Jones and Shoemaker (1994)
for an overview of the application of content analysis in accounting). The objective
of content analysis here is to establish in what way directors explain organisational
performances in the letter to the shareholder. Hence, basically we are interested in
“causal statements”. A causal statement or attribution refers to one or more coherent
sentences or phrases (i.e., part of sentence) in which an organisational outcome (i.e.,
profits, sales, revenues, etc.) is connected with a cause or reason (“explanatory
variable”) for that outcome. Causal statements may be related to past/present or
future organisational outcomes. The fiscal year under consideration is the point of
reference for deciding on past/present outcomes. Frequently, a causal statement may
be recognised explicitly because connective words or phrases are used, for example:
“influenced by”, “is caused by”, “contributed to”, “can be ascribed to”, “because”,
“despite”, “notwithstanding”, and so on. However, a sentence or phrase is
considered a causal statement as well if no such connective words or phrases are
present, but a causal relationship between an organisational outcome and explanatory
variable can implicitly be derived from the text. To be considered a causal statement,
a cause-effect relationship has to be clearly present. Furthermore, organisational
outcome (“effect”) and explanatory variable (“cause”) have to appear in proximity,
e.g., within one or two sentences, or within the same paragraph. Whenever several
causes or reasons (“explanatory variable”) are provided to explain one organisational
outcome, whether or not in the same sentence, each of those combinations are
treated as a separate causal statement.
The identified causal statements are then coded along a number of
dimensions, including the following.
1. Valence of effect, indicating whether the outcome explained is to be evaluated
positive (e.g., increase in sales, decrease in loss et cetera) or negative (e.g.,
decrease in sales, increase in profits et cetera) from the directors’ point of view.
2. Locus of causality, which aims to measure whether a cause is internal (e.g., due to
corporate strategy, other management’s decisions, quality of personnel et cetera)
or is external and beyond management’s control (e.g., general economic
conditions, inflation, interest, a natural disaster, et cetera).
3. Direction of cause-effect relationship, revealing whether cause and effect have the same
sign (e.g., increase in profits due to a well established corporate strategy) or have
opposite signs (e.g., despite the Asia Crisis we were able to increase our sales).
4. Language of causal statement, a dimension aimed at measuring whether the causeeffect relationship is expressed in clear-cut causal language or in accountingtechnical language. An example of the latter is that profits rose as a consequence
of decreasing financial costs.
20% of the letters to the shareholders were independently coded by two coders. As
can be seen in table I the intercoder reliability, as expressed by the correlation
coefficients, is reasonably high and comparable to previous studies.
8
Take in Table I
RESULTS
Table II below contains descriptive data relating to the general financial
characteristics of the Japanese and American companies included in the sample.
Regarding average sales no statistical significant difference is found. The American
companies, however, had on average a significant larger net income to report (p =
0,000). In that respect, the American companies experienced a better year than those
from Japan did. Data obtained from the Worldscope database reveals that the
Japanese companies included in our study had a net income decline of approximately
64,64% to report, reflecting among others the Asia Crisis. Nevertheless, still 9 of the
Japanese companies could report a positive growth in net income. With respect to
sales a similar picture emerge: overall they reported a contraction of sales by 6,48%.
The American companies included in our study, on the other hand, had good
performances to report: overall sales increased by 15,21%, while net income rose by
17,51% (21 American companies reported an increase in net income).
Take in Table II
Although the American CEOs had, comparatively speaking, good news to report
they produced only slightly larger letters to the shareholders than their Japanese
counterparts did when measured in number of pages (p = 0,075). However, when
measured in terms of standardised lines the Americans did have larger letters (p =
0,003): on average their letters counted 126,97 lines, while the Japanese letters only
had 96,66 lines (see table III below).
Take in Table III
Despite that the Americans, on average, produced somewhat larger letters to the
shareholders than the Japanese CEOs did, no difference was found regarding the
number of causal statements contained in the letters. On average the letters to the
shareholders contained 6 to 7 causal statements each. This figure is quite comparable
to the Salancik and Meindl (1984) and the Clapham and Schwenk (1991) studies, in
which on average 8,5 and 7, respectively causal statement per letter were found. It is
larger than the number found in the Bettman and Weitz' study (1983), who on
average found 2,3 causal statements per letter. However, in this study only explicit,
easily identifiable statements were included. Furthermore, the Japanese CEOs
addressed less organisational outcomes in their letters than their colleagues from the
United States did: 2,43 and 3,53, for Japan and U.S. respectively, although this
difference was not significant. This slightly more extensive explanatory behaviour by
the Japanese, both in terms of number of causal attributions and number of reasons
to explain one organisational outcome, is in line with previous social psychological
research which suggested that, especially unexpected, negative outcomes arouse the
search for causal explanations (e.g., Schlenker, 1980; Weiner, 1986). It is also in line
with the previous attributional research on letters to the shareholders (Bettman and
9
Weitz, 1983; Salancik and Meindl, 1984). It seems that CEOs want to give the
appearance of being in control by providing reasons for the poor performance. In
good times, a good strategy seems to let the results speak for themselves to a certain
extent.
Table IV presents an indication of the difference between in the countries
regarding the valence of the explained effects. In line with the negative performance
trend that the Japanese companies experienced, 65,3% of the causal attributions had
a negative valence from the CEO's or company's point of view. The Americans on
the other hand had mostly positive outcomes to report: only 14,4% of the causal
attributions had a negative valence. This difference in valence of evaluated effects
between the United States and Japan is statistically significant (χ2 = 93,55 and p =
0,000).
Take in Table IV
Table V presents the average scores regarding the ascription of positive and
negative outcomes to internal or external causes for the whole sample, without taking
into account the relative trend in profits. Using a non-parametric test (MannWhitney), we found the U.S. companies claiming positive results to a larger extent
than their Japanese counterparts did. Indeed, the Japanese ascribed almost half of the
total amount of positive effects to factors beyond their control.
Take in Table V
The Japanese CEO's, on the other hand, who on average had to account for
declining profits, were more willing to assume personal responsibility for this relative
failure than their American colleagues. However, they also blamed the environment
to a larger extent than the CEO's from the United States did. These findings, and
particularly those concerning IP and IN provide some indication that there is a
difference in explanatory behaviour between American and Japanese CEOs. More
specifically, the results seem to support proposition 2 and indicate that Japanese
CEOs are more modest in the ascription of positive outcomes than their American
colleagues, i.e., also include the environment as a cause. In addition, although the
Japanese also lay blame on the environment for the losses incurred, they also accept
blame for them to a larger extent than the American CEOs did. On average, the
Japanese CEOs mentioned a internal cause 4 times as much as the Americans to
explain a decline in net income. Therefore, these results also seem to support
proposition 3, indicating that the Japanese are more self-deprecating than the
Americans.
In order to measure self-serving tendencies we compared the average number
of evaluated effects ascribed to internal versus external causes. Self-enhancing of
positive outcomes implies more taking credit than involving the environment as a
possible cause, i.e., IP - EP > 0. Self-protection is just the opposite with respect to
negative outcomes, i.e. EN - IN > 0, implying that people are more likely to blame
the environment for a failure than to assume personal responsibility for it. Below
(table VI) the data to establish these tendencies in the United States and Japan are
presented.
10
Take in Table VI
On average the CEOs from the United States show self-enhancing tendencies (i.e.,
IP - EP > 0): they claim successes by ascribing them to causes internal to the
organisation, e.g., a well-established strategy, good management, etc. The Japanese,
on the other hand, show self-protecting tendencies (EN - IN > 0): on average, they
blamed the environment, e.g., the Asia Crisis, the low exchange rate of yen to the US
dollar, etc., for the deterioration in performance they experienced. Furthermore, a
Mann-Whitney test reveals that the for the whole sample, the Americans are more
self-enhancing than the Japanese (Mann-Whitney U= 183,500 and p-value = 0,000),
whereas the Japanese are more self-protecting (Mann-Whitney U = 297,000 and pvalue = 0,016) than the Americans. These results seem logical given the difference in
performance (in terms of net income) between the two countries: on average, the
Americans had to account for successes, whereas the Japanese had to explain failures.
In addition, we also performed separate tests to compare the behaviours of
profitable and unprofitable American and Japanese firms (i.e., those experiencing a
positive and negative income growth, respectively); see table VII below.
Take in Table VII
The results are comparable to the whole sample: both the profitable and unprofitable
American firms showed self-enhancing tendencies, whereas no self-protecting
tendencies were noticeable. The Japanese, on the other hand, irrespective of
performance showed self-protecting tendencies, but we could not find any selfenhancing tendencies. Furthermore, although the Japanese attributed positive effects
more to the environment and are more willing to accept blame for failures than the
American CEOs in the case of both profitable and unprofitable firms, this difference
was statistically not significant (except for unprofitable Japanese CEOs accepting
more blame for negative outcomes than their American colleagues). Given these
differences in performances reported, the results seem to support proposition 1:
both American and Japanese companies show self-serving tendencies in their letter
to the shareholders.
In this study we also looked at more subtle ways of impression management.
More specifically we studied whether we could discover variations in language use in
the letters to the shareholders between the two nations. First of all we looked at the
length of causal statements concerning positive and negative outcomes respectively.
In a recent study of UK letters to the shareholders Clatworthy and Jones (1998)
tested whether managers of 50 profitable and 50 unprofitable companies used
differential reporting strategies with regard to good and bad news. Their results
showed that companies prefer to stress good news: both profitable and unprofitable
firms devoted more space to good news than to bad news. In our study we also
investigated whether the amount of space devoted to good news is larger than that
devoted to bad news in both Japan and the United States. The length was measured
in two ways: not only did we count the number of words, in addition we also
measured the length by using a uniform grid, i.e., a transparent A4-sheet divided into
400 boxes of equal size. The results are presented in table VIII. The American
11
companies on average used a balanced coverage strategy: we could not find a
significant difference in the amount of space devoted to good or bad news. A similar
result was obtained by Bettman and Weitz (1983) in their study of American letters
to the shareholders: they were neither able to find any main effects. This is quite
different from the results of the Clatworthy and Jones (1998) study. Possible
explanations for this divergence might be that we focused on causal statements sec
and used sentences (from one punctuation to another) to measure the amount of
space, whereas in the Clatworthy and Jones study the individual positive or negative
words were used to measure the amount of space. Furthermore, the items included
as good or bad news in the Clatworthy and Jones study were broader than our study,
as we only included causal statements regarding accounting outcomes and
shareholder value.
Take in Table VIII
The Japanese companies that reported a positive growth in net income used a similar
coverage strategy as their American counterparts did: the amount of space devoted in
the letter to the shareholders to good and bad news is balanced (i.e., no statistically
significant difference could be found). The Japanese companies that experienced a
bad year, on the other hand, particularly seemed to feel the need of providing
explanations for this results: both in terms of words and boxes the amount of space
devoted to bad news was larger than that devoted to good news. This finding is in
line with previous social psychological research which suggests that the amount of
causal reasoning will be more extensive if outcomes are unfavourable and/or
unexpected (Weiner, 1986).
Furthermore, we also looked at the way causal statements are expressed:
either in clear-cut causal language or in accounting-technical language where
responsibility may not easily be assigned. The results are presented in table IX.
Take in Table IX
Although in both the American and Japanese letters to the shareholders accountingtechnical language is used more frequently to explain negative outcomes than to
explain positive outcomes, this difference is statistically not significant. However, it
seems that the use of accounting-technical language is more prevalent in Japan than
in the United States (χ2 = 3,477 and p = 0,052) and particularly to explain positive
effects. Regarding negative effects we could not find any significant difference in
language use between the two countries (χ2 = 0,316). Overall, i.e., when not taking
into account the valence of the explained effects, the results support proposition 4:
the Japanese used accounting-explanations to a larger extent than the Americans did
to explain organisational outcomes (χ2 = 5,994 and p-value = 0,010). We also
checked for the presence of the so-called accounting bias implying that positive
outcomes are accounted for in causal language, while negative outcomes are more
accounted for in accounting-technical language (see, Aerts, 1994).
Take in Table X
12
Table X indicates that in both the United States as well as in Japan positive outcomes
are predominantly accounted for in causal language as is in line with Aerts' findings.
However, contrary to his results, we find that negative outcomes are also explained in
causal language, indicating that the CEOs of both countries are not inclined to
conceal the reasons for a decline in sales, income etc. by using such accounting
explanations.
Furthermore, we also looked at the direction of the cause-effect relationship
(see table IX). Variations in directions may be used as subtle impression management
techniques: in order to leverage or highlight a certain effect, e.g., "Notwithstanding
the Asia Crisis out net income rose to 4,035 billion". Because of this characteristic
the use of such form of impression management seems particularly logical to explain
positive outcomes, but not to explain negative outcomes. In the letters to the
shareholders we examined, such leverage was mostly used to account for positive
outcomes as expected (US: χ2 = 2,779 and p = 0,087; Japan: χ2 = 6,694 and p =
0,009). Furthermore, it seems that the Japanese used it to a larger extent than the
Americans to explain negative outcomes. These outcomes may be seen a further
indication of the self-deprecating tendencies of the Japanese people.
DISCUSSION AND CONCLUSION
In this paper we investigated the CEO’s letter to the shareholders of 30 large
American and Japanese companies. The main purpose of this study was to examine
possible variations in attributions of positive and negative organisational outcomes as
a function of different cultural backgrounds between the two countries. We
predicted, in line with the social psychological research, that both Japanese and
American CEOs will show self-serving tendencies when explaining outcomes in their
letters to the shareholders. Furthermore, it was also hypothesised that when
compared to the American CEOs, the Japanese CEOs would be more modest in
attributing positive outcomes, i.e., also are inclined to ascribe them to external causes,
and more self-deprecating with regard to negative outcomes, i.e., accept blame by
ascribing them to internal causes. The attributional patterns found in the letters
studied to a large extent supported these propositions. Both the American and the
Japanese CEOs show self-serving tendencies: on average, the Americans ascribed the
positive outcomes they experienced to their own efforts (i.e., causes internal to the
organisation). The Japanese, who on average had to account for declining profits,
showed a self-protecting tendency: they blamed the environment, e.g., the Asia Crisis,
for the bad results. However, they were also more modest in the attribution of
positive results than the Americans: they referred to external factors as possible
causes to a larger extent. However, somewhat more surprisingly, they leveraged
positive outcomes also to a larger extent, thereby somewhat weakening their modesty.
Regarding negative outcomes, the Japanese CEOs are very alike the ordinary people:
they show a strong self-deprecating tendency. Compared to their American
colleagues they not only referred to internal factors as causes more often, in addition
they leveraged the negative outcomes by using opposite directions between cause and
effect (e.g., despite the expanding economies of the United States and in Europe, we
reported a net loss of 5,389 billion). Furthermore, we also looked at the language
used to explain positive and negative outcomes. Aerts (1994) hypothesised and found
that Belgian firms prefer to explain negative outcomes in ambiguous accountingtechnical language in which responsibility is not really addressed, whereas positive
13
outcomes were explained in more clear-cut causal language. In our study, however,
we did not find such a bias: both positive and negative outcomes are explained in
causal language. However, our study did reveal a cultural difference: as expected, the
Japanese used accounting technical language to a larger extent than the American
CEOs. In sum, the results found in this study largely concur with those found in
earlier social psychological research: CEOs are like ordinary people and show the
same tendencies.
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17
APPENDIX: COMPANIES EXAMINED
US
General Motors
Wal-Mart
Exxon
General Electric
Ford Motors
Philip Morris
Compaq
Boeing
IBM
At&T
Hewlett Packard
K-Mart
Procter&Gamble
DuPont
BellAtlantic
HomeDepot
Lucent Technologies
Sears, Roebeck & Co.
Intel Corp.
Chevron
Merck
SBC Com.
JC Penney
Kroger
Lockheed
Motorola
Texaco
USPS
GTE
UTC
Japan
Mitsui
Itochu
Toyota
Marubeni
Sumitomo
Nissho Iwai
Hitachi
Matsushita
Sony
Nissan
Honda
Mitsubishi Electric
Nippon Steel
Bridgestone
Fujitsu
NEC
Canon
Jusco
Mazda
Sharp
Suzuki
Fuji Film
DDI
Japan Airlines
DNP
Kobe Steel
Asahi Glass
Toppan
Toshiba
Mitsubishi Corporation
18
TABLES
Table I Intercoder reliability of data
Correlation
coefficient
Valence
1,000
Locus
0,895
Direction
0,767
Language
0,386
p-value
(one-tailed test)
0,000
0,000
0,000
0,011
Table II General financial characteristics
#
Average sales (in th USD)
Average net income
(in th USD)
Sales growth (%)#
Net income growth (%)#
U.S. companies
60.108.767
Japanese companies
45.835.805
4.001.883
137.995
15,21%
17,51%
(6,48%)
(64,64%)
In the case of Japan the growth % is based on JPY figures
Table III Descriptive data regarding letters to the shareholders
U.S. Companies
Average length in number
3,93 (2,05)**
of pages
Average length in number
126,97 (69,28) *
of lines divided by number
of columns per page
Average number of causal
5,50 (5,69)
statements in letter
Average number of
3,53 (3,45)
explained effects in letter
Average number of
3,13 (4,09)
explanations per outcome
Japanese companies
3,43 (1,36)
96,66 (30,40)
6,53 (4,02)
2,43 (2,88)
4,43 (3,35)
** , *
represent significant differences between means of U.S. and Japanese companies at the 10% and
1% levels respectively in two tailed t-tests. The numbers between brackets represent the standard
deviations.
19
Table IV Crosstabulation Country * Valence explained effect
Valence explained effect
Positive
Negative
Number
%
Number
%
United States
137
85,6%
23
14,4%
Japan
68
34,7%
128
65,3%
Total
205
57,6%
151
42,4%
Table V Descriptive data regarding causal statements
American companies
(n=30)
Mean
Sd
%
#
Japanese companies
(n=30)
Mean
Sd
%
Internal, positive (IP)
External, positive (EP)
3,30
0,63
2,98
1,56
83,90%
16,10%
1,00#
0,77
1,64
1,04
56,60%
43,40%
Internal, negative (IN)
External negative (EN)
0,20
0,47
0,61
1,14
31,58%
68,42%
0,90#
2,43#
1,03
2,31
27,00%
73,00%
Difference between United States and Japan is statistically significant at the 1% level
Table VI Self-serving tendencies in American and Japanese letters to the shareholders
Mean
Sd
Z-value
p-value
United States (n=30)
IP – EP (self-enhancement)
2,6667
2,8567
-4,3788#
0,0000
EN – IN (self-protection)
0,2667
1,3629
-0,6325
0,5271
#
Japan (n=30)
IP – EP (self-enhancement)
EN – IN (self-protection)
0,2333
1,5333
1,5687
2,4738
-1,0000
-3,5301#
0,3173
0,0004
Effect is statistically significant at the 1% level using a (non-parametric) binomial test with testproportion = 0,50
20
Table VII Self-serving tendencies for profitable and unprofitable companies
Profitable companies
Unprofitable companies
(Us = 21;Japan = 9)
(Us =9; Japan = 21)
Mean
Sd
Mean
Sd
IP
Us
3,67
3,20
2,44#
2,35
Japan
1,89
2,20
0,62
1,20
p = 0,149
p = 0,021
EP
Us
0,81
1,83
0,22
0,44
Japan
1,22
1,20
0,57
0,93
p = 0,106
p = 0,416
EN
US
0,62#
1,32
0,11@
0,33
Japan
1,44
0,88
2,86
2,61
p = 0,017
p = 0,001
IN
US
0,14
0,65
0,33*
0,50
Japan
0,44
1,01
1,10
1,00
p = 0,164
p = 0,049
#φ
@α
IP-EP US
3,10
2,28
2,86
2,22
Japan
0,67
2,40
0,05
1,07
p = 0,028
p = 0,005
EN-IN Us
0,48
1,54
-0,22#
0,67
α
φ
Japan
1,73
0,60
1,00
2,74
p = 0,164
p = 0,040
@
Difference between US and Japan is statistically significant at the 1% level using a Mann Whitney test;
Difference between US and Japan is statistically significant at the 5% level using a Mann Whitney test;
*
Difference between US and Japan is statistically significant at the 10% level using a Mann Whitney test;
p p-value refers to significance of difference between US and Japan as calculated in a Mann Whitney test;
φ
Effect is statistical significant at the 1% level using a binomial test (test proportion = 0,5000);
α
Effect is statistical significant at the 5% level using a binomial test (test proportion = 0,5000).
#
Table VIII Good and bad news coverage in companies with positive and negative
net income growth
Good news
Bad news
(causal statement with
(causal statement with
positive valence)
negative valence)
Positive
Negative
Positive
Negative
growth
growth
growth
growth
American companies
Mean total words
35,48
28,14
39,28
23,40
Mean total number of
10,75
10,52
11,44
8,40
boxes from grid
Japanese companies
Mean total words
Mean total number of
boxes from grid
28,20
9,00
28,48**
10,15*
** , *
26,86
9,28
36,30**
13,95*
represent significant differences between means of "profitable" and "unprofitable" companies at
the 5% and 1% levels, respectively in a two-tailed t-test
21
Table IX Crosstabulation with regard to variation in type of language
Type of
Leverage/Direction of
Cause-efffect relationship
Cause-effect relationship
Accounting
Valence
Causal
technical
language
Same
Opposite
outcome
language
Positive
122 89,1%
15 10,9% 170
82,9%
15 10,9%
U.S.
n=30
Negative
19 82,6%
4 17,4% 23 100,0%
Total
88,1%
11,9%
92,8%
7,2%
Positive
54 79,4%
14 20,6% 48
70,6%
20 29,4%
Japan
n=30
Negative
99 77,3%
29 22,7% 110
85,9%
18 14,1%
Total
78,1%
21,9%
91,3%
8,7%
Table X The accounting bias in letters to the shareholders
CP - AP
(causal positive - accounting positive)
US
Mean
Sd
Z-value
p-value
3,5000
4,1750
4,3788
0,0000
Japan
1,2333
2,0957
2,8284
0,0047
22
AN - CN
(accounting negative – causal negative)
US
-0,5000
1,0086
1,8974
0,0578
Japan
-2,3333
2,7957
3,2717
0,0011