Communicative Action And Corporate Annual Reports

Annual reports are an important element in the genre of corporate public discourse. The reporting practices mandated by the Securities and Exchange Commission for all publicly traded corporations are intended to render the annual reports a legitimate and trustworthy medium through which management communicates information related to the financial performance of the firm. The following discussion represents an inaugural attempt to investigate the ethical characteristics of the discourse found in corporate annual reports using Habermas\u27 principles of communicative action. In preparing the Management\u27s Discussion and Analysis (MD&A) portion of the report, managers are charged with providing narrative information for investors and other interested third parties relevant to assessing the firm\u27s financial condition. Previous rhetorical studies of the narrative portions of annual reports argue that they serve as means for both legitimate and distorted communication. We investigate this communication medium through the lens of Habermas\u27 norms for communicative action, which require communicators to be comprehensible, truthful, sincere, and legitimate. The study represents an initial attempt to operationalization Habermas\u27 principles of communicative action and to employ a methodology that facilitates their application to research within a business context. From one perspective, consistent with agency theory as specified by neoclassical economics, it would seem that firms anticipating worse-than-expected financial performance would be less likely to exhibit the Habermasian principles necessary for undistorted communication because they would attempt to strategically influence the message being communicated about the firm\u27s financial position. Instead, employing rhetorical analysis software, Diction 5.0, we found that firms expecting both good and bad earnings surprises exhibited a higher level of communicative action than a composite average firm. Although preliminary in nature, our findings suggest that firms anticipating large earnings surprises, either high or low, use the narrative portion of the annual report as a vehicle through which to communicate information about managements\u27 veracity and trustworthiness as well as the firm\u27s financial position