The impact of management\u27s tone on the perception of management\u27s credibility in forecasting

The purpose of this study is to examine the impact of management altering its tone in communications on participants\u27 perceptions of management credibility. Management\u27s tone in communicating with participants was manipulated using communications from management under two treatment conditions. In period one of the study management\u27s tone was manipulated within the management statement on internal controls as required by the Public Company Accounting Oversight Board\u27s (PCAOB) Auditing Standards No. 2. In period one, participants had no knowledge of management\u27s prior forecasting accuracy. Consistent with predicted hypotheses, the findings reveal that management can increase its credibility with participants by communicating its empathy, responsiveness, and understanding. Management\u27s increased credibility was measured using both a validated credibility scale and by examining participants\u27 reliance on management\u27s forecasts. In period two of the study all participants had knowledge of management\u27s forecast failure in period one. The results from period two found that tone could impact the rating of management\u27s credibility when management had previously failed to meet a forecast but that tone had no impact on participant\u27s changes in their earnings per share estimates after management had previously failed to meet a forecast