نامه هایی به سهامداران: مقایسه تجزیه و تحلیل محتوای نامه های نوشته شده توسط مدیران اجرائی در ایالات متحده و ژاپن

Previous studies suggest that letters to the shareholders are widely used in investors' decision-making processes. Letters to the shareholders, however, are unaudited and usually not subject to regulation. Hence, CEOs may use them strategically to manage the impressions shareholders have of the company. This paper focuses on letters to the shareholders from Japanese and U.S. companies. The research examines whether U.S. and Japanese CEOs explain the causes of good and bad news in different ways. The findings point to a number of interesting differences between the U.S. and Japanese letters to the shareholders, including: (1) that U.S. CEOs in particular emphasize good news; (2) that Japanese and U.S. letters are statistically indistinguishable with respect to the extent to which CEOs claim responsibility for good news; and (3) that while CEOs in general ascribe bad news to causes beyond their control, this tendency is particularly strong in Japanese letters. The implications of the study for both investors and regulators are discussed.

The objective of this paper is to examine whether U.S. and Japanese CEOs address company performance differently in their letters to the shareholders.1 The letter to the shareholders is usually not subject to regulation, and the auditor's role remains limited to verifying that the information in it is consistent with the numbers presented in the financial statements (Clatworthy & Jones, 2003 and Nobes & Parker, 1998).2 Hence, it provides management with an excellent opportunity to manage the impressions outsiders have of the company without having to worry too much about regulatory repercussions. Prior research indicates that U.S. CEOs utilize this opportunity by using a self-serving attributional bias (e.g., Bettman & Weitz, 1983, Staw et al., 1983 and Lee et al., 2004). This implies that they are inclined to explain good news (e.g., an increase in profits) in terms of internal causes such as the corporate strategy and investment decisions. However, it also means that they are likely to ascribe bad news to adverse general economic conditions, the weather, or other causes beyond management's control. More recent studies demonstrate that European CEOs also address company performance in a self-serving fashion by ascribing good news to themselves and by blaming bad outcomes on the external environment (Aerts, 1994, Aerts, 2005 and Clatworthy & Jones, 2003). The importance of the letter to the shareholders is well documented. Studies in various countries demonstrate that accounting narratives and especially the letter to the shareholders are particularly useful and important parts of the annual report (Bartlett & Chandler, 1997 and Epstein & Pava, 1993). For example, Bartlett and Chandler (1997) show that of the various sections of the annual report, the letter to the shareholders is the most thoroughly read by private investors and ranked second in overall importance. Furthermore, several other studies suggest that the letter can influence private investors' decisions (e.g., Kaplan et al., 1990 and Baird & Zelin, 2000). Baird and Zelin (2000), for example, find that the order in which positive and negative information is presented in the letter significantly influenced investors' decisions. Although the letter seems particularly important for private investors, also more sophisticated users, such as financial analysts, do seem to use it. For example, Breton and Taffler (2001, p. 99) find that analysts rely on “non-financial, soft, qualitative and impressive information in making stock recommendations.” Additionally, it seems that CEOs' explanations for company performance affect analysts' forecasts. For example, Barton and Mercer (2005) conduct an experiment with financial analysts to investigate their reactions to external explanations for poor financial performance. They demonstrate that implausible explanations backfire and lead analysts to provide lower earnings forecasts and to assess a higher cost of capital than if the explanation had not been provided. Plausible explanations, however, did not improve management's reputation with analysts, suggesting that analysts expect managers to provide plausible performance explanations. The present study examines the fashion in which firm performance is addressed in letters to the shareholders from the world's two largest capital markets: the United States and Japan. These two countries are considered important not only for the development of accounting (Nobes & Parker, 1998), but also because the cultural values predominating in these countries are dissimilar (e.g., Hofstede, 2001). Prior studies have demonstrated that as a result of these cultural differences management practices in Japan are considerably different from U.S. practices (e.g., Bruton & Lau, 2008, Hofstede, 2001 and Kim & Nam, 1998). Furthermore, there is evidence that culture affects financial reporting (see Chanchani & MacGregor, 1999 and Doupnik & Tsakumis, 2004 for overviews). An additional research question of the study is to examine whether the creation of the International Accounting Standards Board (IASB) in 2001 and the subsequent processes toward convergence with International Financial Reporting Standards (IFRS) that have taken place in the United States and Japan affected the letters written by the CEOs in these countries.3 Although IFRS do not cover letters, it is conceivable that the convergence processes influenced the use of self-serving attributions in the letters to the shareholders. It is also noted that in 2002 the IASB started a project called “Management Commentary,” which aimed to examine the need to develop guidance for narrative disclosures. Furthermore, although the Sarbanes–Oxley Act (SOX) of 2002 does not address the letter in particular, it cannot be ruled out that it might have had an effect on U.S. CEOs' letters in the post-SOX period. The present paper contributes to the literature in several ways. This study is the first to examine letters from Japanese companies. As such, it extends prior research into the self-serving attributional bias in letters to the shareholders as well as into the amount of information disclosed in Japanese annual reports (e.g., Cooke, 1993 and Singleton & Globerman, 2002). Furthermore, this study is one of the few that examines letters to the shareholders from a comparative perspective. Hence, it complements previous comparative studies that examine measurement and disclosure practices. Specifically, this study looks at the use of impression management techniques in the conveyance of information through the letter to the shareholders. According to Merkl-Davies and Brennan (2007) the use of impression management techniques may undermine the quality of financial reporting. By comparing letters from Japanese and U.S. companies, this study shows the widespread use of impression management in letters to the shareholders from these two countries. Another contribution of the study is that, apart from examining the self-serving attributional bias, it also considers positive and negative outcomes that are not specifically explained in the letter to the shareholders. As is discussed in Section 2.2, statements that simply present outcomes without any explanation may also be important. Prior studies only considered statements in which effects were ascribed to causes (e.g., Aerts, 1994, Aerts, 2005 and Lee et al., 2004). The inclusion of effects that are not explained in the letter provides a more complete picture of impression management through the letter and, as such, enriches the accounting literature on this subject. A final contribution of the present study is that it examines letters from both the period before and after the creation of the IASB in 2001. Prior studies have examined, among others, the extent to which the disclosure requirements of the IASB are voluntarily complied with (Street & Bryant, 2000), the effects of international accounting standards on earnings management (Van Tendeloo & Vanstraelen, 2005), and the impact of auditor choice on IFRS compliance (Hodgdon et al., 2009). To the best of my knowledge, this is the first study that examines the possible impact of international accounting standards on the relatively unregulated letters to the shareholders. Although the IFRS do not address this type of disclosure, it is an open empirical question whether the subsequent convergence process affected the letters in Japan and the United States. The remainder of the paper is organized as follows. Section 2 provides a review of the literature and develops the hypotheses of the study. Section 3 describes the research design. 4 and 5, respectively, present and discuss the empirical results. Section 6 concludes the paper.

This study provided evidence suggesting that CEOs explain organizational outcomes in a self-serving manner in their letters to the shareholders. First, CEOs prefer both to present as well as claim responsibility for good news. Second, bad news is predominantly externalized by blaming it on causes such as the weather or a recession. These results suggest that explanations in letters might be used strategically to influence readers' perceptions of the company. However, the study also provided some evidence of U.S.–Japan differences that suggests that the country in which a company operates may have an impact on this form of impression management. The results of this study have a number of implications. First, they confirm previous research that demonstrates that this specific type of accounting narrative is subject to impression management and, hence, may harm the provision of a balanced, true, and fair view of company performance (Clatworthy & Jones, 2003). Otherwise stated, the quality of financial reporting may be undermined because letters to the shareholders are subject to impression management (Merkl-Davies & Brennan, 2007). Second, the findings have implications for regulators in general and the IASB and International Federation of Accountants (IFAC) in particular. This study indicates that to a certain extent national differences are present in accounting narratives. Therefore, the IASB is advised to draw up a new Standard (or revise IAS1 Presentation of Financial Statements) containing requirements with respect to accounting narratives. The IFAC, which issues the International Standards on Auditing (ISAs), is encouraged to examine whether they should establish a new ISA in which auditors are required not only to ensure consistency of the information in the accounting narratives (including the CEO's letter) with the financial results presented elsewhere in the annual report, but, additionally, to give guidance on how this independent review should be performed. The results of this study are subject to a number of important caveats. A first limitation of the study concerns the exclusive focus on letters of U.S. and Japanese companies. Although a number of differences between Japanese and U.S. companies with respect to the way results are explained in letters to the shareholders were found, the results are not necessarily generalizable to a comparison between, for instance, Singapore and the United Kingdom or Thailand and Australia. Further studies need to replicate this investigation. A second limitation relates to the sample. The sampled firms are, on average, larger than the other U.S.-listed and Japanese-listed firms. Although in terms of firm performance, the sampled and other U.S. and Japanese firms are statistically indistinguishable and although I believe that self-serving attributional biases within the letter are mainly driven by firm performance, I cannot rule out the possibility that the results of this study are not generalizable to the smaller listed firms. A third limitation of the study involves the exclusive focus on one form of impression management, that is, the good news and bad news statements presented in the letters. Other possible forms of impression management, which may also be present in letters to the shareholders, include biases in the conveyance of news, distortions in graphs, variations in readability, and juxtaposition of color. Possibly these other forms of managing people's impressions work hand in hand with the use of self-serving explanations. A last, related limitation is that the letter was examined in isolation and other sections of the financial report were ignored. As this study considered only the relatively unregulated letter, it is unclear whether the results would have been different if other parts of the annual report were examined instead. For instance, in other more regulated parts of the annual report, and the MD&A (or the comparable Operational and Financial Review) section in particular, the self-serving attributional bias may possibly be less pronounced.