Voluntary Disclosure in Annual Reports: The Association between Magnitude and Direction of Change in Corporate Financial Performance and Graph Use

Prior archival research indicates that companies reporting increases in key financial performance variables (KFVs) are more likely to include graphs of these measures in their annual reports. This study expands prior work by using impression management and political cost theories to predict that the relationship between magnitude of KFV change and graphical disclosure differs, depending on whether the KFV is increasing or decreasing. Using data from 184 top U.S. companies that were in continual existence from 1999 to 2005, we replicate earlier findings that companies with increases in corporate performance are more likely to graph KFVs. Consistent with earlier theories of graphical disclosure, we find that companies with larger decreases in performance measures tend to be less likely to graph KFVs. At the same time, we extend prior research by showing that companies with larger increases in sales are more likely to graph these measures, but companies with larger increases in the "bottom line" measures of net income and earnings per share are less likely to graph KFVs. Our results indicate that the relationship between changes in corporate performance and graph usage is more complex than the simple directional relationships found in earlier research. These findings are consistent with impression management and political cost theories. [PUBLICATION ABSTRACT]