An examination of the use of impression management in the management discussion and analysis section of the annual report

This research examines the use of impression management in MD&A disclosures. Publicly traded firms are required by the Securities and Exchange Commission (SEC) to publish annual reports to shareholders. The SEC mandates certain disclosures in these reports under item 303 of Regulation S-K, Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A). The firm may present the disclosures as it chooses as long as the presentation falls within MD&A guidelines; thus, firms could use various styles of disclosure, collectively referred to as impression management, to shape or frame users' interpretation of the financial results.;A sample of MD&A from firms reporting in the periods 1983--1985 and 1992 was chosen and grouped by firm size and direction of earnings change. Large firms with negative earnings changes were hypothesized to more frequently use impression management. Seven undergraduate accounting students used content analysis procedures to code MD&A on measures of MD&A size, amount of attribution usage, and style and direction of attribution. Analysis of the measures and codings indicate that firms with a negative earnings change use slightly more causal attributions than do other firms. For all firms, positive events are strongly attributed to actions by the firm, while negative events are only weakly attributed to sources outside the firm. There were few significant differences between the 1983--1985 and 1992 samples. Measurement error within the coding procedure itself and the effect of omitted and unmeasured variables may have affected the strength of the results.