Accounting Theories And Approaches Accounting Essay

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In this thesis, the attributional patterns in accounting narratives and the role of impression management have been investigated, considering the details of the organizational environment in which attributional behaviour occurs for Dutch AEX listed companies regarding the years 1998, 2001, 2006 and 2008, which have been referred as "good" and "bad" economic circumstances regarding the capital market context. Different theories explaining managers' motives to engage in impression management have been discussed. The basis of organizational discourse is in theory supported by the perception of self-serving attributions, which is a particular example of causal reasoning which makes it possible for the preparer to take credit for favourable news and avoid responsibility for unfavourable news. This tendency is known as the self-serving attributional bias. Within the social psychology, the attribution theory is concerned with the study of explanations people give for events. This phenomenon also applies for managers of companies, since the management is responsible for explanations for its decisions and actions against internal and external stakeholders. Several studies document a consistent asymmetry in the attributions managers make for their business performance. Based on different motivations for impression management occurrences, like the motivational and informational explanations, contributions are added to this research from signalling theory and agency theory in order to develop hypotheses for the expected levels of self-serving attributions in the justification for organizational performance. Using this approach, different scenarios are examined in good and poor economic circumstances. The results of this research are in line with the motivational theories which argue that self-serving attributions arise from ego-defensive rationalizations. Attributions as to the causes of performance might serve a self-presentational function. They allow individuals (or corporations) an opportunity to defend or enhance their self-esteem. This means that on the one hand a successful outcome is attributed to internal factors, the so called "self-enhancing bias", while on the other hand failures are attributed to external factors, the so called "self-protecting bias".

Keywords: positive accounting theory, attribution theory, impression management, letter to the shareholders, agency theory, signalling theory, informational and motivational explanations.

Preface

As a part of the master study Accounting, Auditing & Control at the Erasmus University, I have conducted this research to the attributional patterns that might be appearing in the annual reports of the Dutch AEX listed companies. This master thesis is the final part of my master study. The writing of this thesis was unfortunately not so easy as that I hoped it would be. I have delayed the writing for many years, partly because of setbacks and partly through many changes that I have undergone in my personal life. This process seemed to have no ending. Ultimately, I have found the courage and the motivation to finalize this thesis.

The writing of the thesis has taken a long time and it would certainly not have been possible without support from outside. Therefore, I would like to thank all the people who directly or indirectly have been involved in the preparation of my master thesis. I would like to thank especially some people for their great support through the years.

I would like to express my special thanks to mr. van Dongen for his valuable input and for guiding and encouraging me throughout this thesis process, guidance in the selection of the topic and for providing the supervision support in the completion of this master thesis.

Additionally, I would like to thank my dear husband Murat Aslan for his great support. Also deserving thanks are my parents and my sisters. Without their support it would be very difficult for me to finalize this thesis.

Altogether, writing this thesis was a great experience for me and it is a special honor to present and share this experience with you.

I hope you enjoy reading.

Rotterdam, 25 February 2013

Hulya Ozcan

Table of Content

Abstract 2

Preface 3

Chapter 1 Introduction 5

1.1 Introduction 5

1.2 Problem Statement 7

1.3 Research question & Sub questions 10

1.4 Hypothesis and Methodology 11

1.5 Data and Sample 13

1.6 Delineation of research and research approach 13

1.7 Relevance 17

1.8 Structure of thesis 17

Chapter 1 Introduction

1.1 Introduction

Companies are required by law or other legislations to issue each year an annual report. This annual report can be seen as communication medium, whereby the managers of the company serve as a transmitter and the users of the annual report (such as shareholders) serve as the receivers (Gibbins et al., 1992). Shareholders, stakeholders and creditors are informed by the use of the annual report about the history of the company, the expected movements in the future and the financial state of affairs (Epstein and Pava, 1993; Courtis, 1995, 1998). The preparation of the annual report has two key purposes. Firstly, it offers help to (probable) investors in their choice whether they will invest or not in a company. Secondly, the shareholders and stakeholders are given the opportunity to assess the management's stewardship of business, by assessing how the management uses its resources (Beaver, 1998). The annual report contains accounting narratives. These accounting narratives are written parts, tables, graphs and other possible visualizations.

Accounting narratives has a growing importance (Clatworthy & Jones, 2003). They can be used for impression management purposes (Hooghiemstra, 2003). There is much value attached to these narratives by the shareholders and other stakeholders. The accomplished performances and the associated accounting outcomes in the period under review are expressed in these accounting narratives. Herein, also the expected future developments are included. Besides this, also explanations are given for the accomplished performances in means of reasons, factors, causes and relationships. Also, an understanding is provided in other tangible variables that influences the results of the company, which are not recognized in the financial statements such as the quality of the management, innovatory skills and knowledge assets. These factors are important for investments decisions from stakeholders and shareholders.

According to Scott (2003), the more information included in the annual report the better from the perspective of the shareholders and stakeholders. This reduces the chance that managers exhibit to opportunistic behaviour and participate in insider trading. When the information in the annual report is presented in a useful and good accessible manner, it is easier for investors to base their investments decisions on. While managers will offer their explanations, rationalizations and legitimation of its activities in such a way that they affect the company's public reputation and image positively (Pfeffer, 1981), auditors are more focused on the financial statements. The legal requirements for the annual report (art. 2:391 BW) are limited. It is required only that the reports include a "fair view of the situation on the balance sheet date and the developments during the year", and that "announcements were made about the state of affairs". Also is prescribed that the annual report should not conflict with the financial statements. However, there are no restrictions imposed regarding on how the results of the past year are declared. Managers therefore, have the opportunity to make use of impression management and manipulate the view of the shareholders. Managers will make use of this room for discretion because they are guided by their self-interest. It often happens that managers will be rewarded based on their achieved results. Therefore, they will be tended to justify or secure their reward. Less attention will be paid to negative unfavourable results, while in contrast positive beneficial results will be discussed as far as possible.

Hooghiemstra [2000, p. 60] states that impression managements is "a field of study within social psychology studying how individuals present themselves to others to be perceived favourably by others." This definition translated in reporting context views impression management as efforts to

"control and manipulate the impression conveyed to users of accounting information" (Clatworthy and Jones, 2001, p. 311). Therefore, it is likely that managers make use of impression management as a tool to "strategically…manipulate the perceptions and decisions of stakeholders".

Most studies that relates to the quality of reports have focused primarily on earnings management (e.g. Burgstahler and Eames, 2006] and fraud [e.g. Rezaee, 2005). There are fewer studies that focusses on the manipulation of impressions that others have, related to the performances achieved by companies. The content and presentation of the information is so subtly recorded, that it will "distort readers" views of the achieved accomplishments of the company (Godfrey et al., 2003, p. 96). Whereas earnings management leads to better decision making, by including relevant information about future cash flows, impression management leads to presumable capital misallocations [Holthausen, 1990].

In this thesis, the attributional patterns in accounting narratives and the role of impression management considering the details of the organizational environment in which attributional behaviour occurs for Dutch AEX listed companies in a "good" and "bad" year, will be investigated. Different theories explaining managers' motives to engage in impression management will be discussed.

1.2 Problem Statement

According to Heider (1958) en Weiner (1985, 1986), people could assign events to internal factors such as expertise and commitment as well as external factors such as luck or bad luck. Prior research has illustrated that people shows a certain bias in giving explanations. They tend to choose attributions that flatters them and place them in a good day light (Heider, 1958). This tendency is known as the self-serving attributional bias. Within the social psychology, the attribution theory is concerned with the study of explanations people give for events. This means that on the one hand a successful outcome is attributed to internal factors, the so called "self-enhancing bias", while on the other hand failures are attributed to external factors, the so called "self-protecting bias".

This phenomenon also applies for managers of companies, since the management is responsible for explanations for its decisions and actions against internal and external stakeholders. Several studies document a consistent asymmetry in the attributions managers make for their business performance. In general, managers make internal attributions for desired outcomes and external attributions for undesired outcomes. In case of positive circumstances the explanations by the management for the positive results, might be referred or attributed to the effectiveness of the company strategy.

One perspective is that self-serving attributions arise from ego-defensive rationalizations (Staw, 1980). Attributions as to the causes of performance can serve a self-presentational function. They allow individuals (or corporations) an opportunity to defend or enhance their self-esteem. Authors of several reviews have argued that recent research strongly supports this motivational explanation (Bradley, 1978; Snyder, Stephan, and Rosenfield, 1978; Zuckerman, 1979).

In an influential early analysis, however, Miller and Ross (1975) argued that self-serving attributions might occur even when ego-defensiveness is not involved. The self-serving attributions may be due to the nature of the information that is available or salient to the attributor and not due to ego-defensive motives. The particular informational explanation used by Miller and Ross is based on the premise that individuals (and presumably organizations) usually intend and expect to succeed and make plans that will lead to success. Hence, if favourable outcomes occur, they are attributed to internal causes. Similarly, unfavourable outcomes are unexpected and unintended and are likely to be attributed to external causes.

Aerts (2005) emphasized an important factor in his study to the self-serving attributions by managers. He emphasized the capital market environment as an important variable to discern situations of strong and weak motivational influences on the use of self-serving attributions (Tessarolo, 2010). Aerts (2005) argued that prior studies, which were concerned about this topic, have overstated the relative importance of the informational explanation in their efforts to identify the presence of biased trends of attributions. He argued that this situation results from the fact that most prior studies did not consider the details of the social and organizational environment in which attributional behaviour occurs (Aerts, 2005). For example, increased accountability demands, caused by the capital market environment, and retrospective inspection important background forces in determining motivational attributional behaviour in listed companies (Aerts, 2005).

Hooghiemstra (2003) believes that in prior research on this to another essential aspect, namely cultural differences, is unaddressed. His thoughts are based on a pioneering study conducted by Gray (1988), in which is assumed that also culture, besides aspects as corporate governance structures, legal systems and capital market influences might affect the accounting practices.

Although that the scientists agree that both motivational and informational factors influences self-serving attributions, there is a disagreement to which extent these factors applies.

In this thesis, both the explanations given for positive results and poor results, as the surrounding economic environment in which the company find themselves will be considered. Specifically, there will be a year examined, where the economic circumstances were good and a year, where the economic circumstances were poor. In this way, the patterns of attribution can be examined whether they correspond to what is expected as both informational as motivational factors are involved.

Both in a year with positive and negative results, it is expected that a self-serving pattern of attributions will occur. When the results are positive, this will be attributed to internal causes and negative results to external causes. In addition, it can be assumed that in a year where the economic circumstances are good, attributions will be made to internal causes. When the economic circumstances in a year are poor, more attributions will be made to external causes. An interaction of the economic circumstances with the results is expected (Bettman and Weitz, 1998).

There can be made several motivational and informational explanations for self-serving attributions.

The rationale behind such explanations is very important to understand. Following Bettman and Weitz (1998), for the rationalization of informational explanations, Kelley's (1971) attributional principles of discounting and augmentation will be used. When the results are negative in a year with bad economic circumstances, the disappointing performances will be assigned to many possible external reasons. However, when the results are negative in a year with good economic circumstances, there are fewer possible external reasons where the disappointing performances can be assigned to. Kelly (1971) states that the role of internal causes would be judged to be greater. This is the so-called augmentation principle. Therefore, it can be assumed that more attributions are assigned to external factors in a "bad" year than in a "good" year. The same principle applies for positive (satisfactory) results. When the results are positive in a year with good economic circumstances, there will be more external causes that can be assigned to the satisfactory performance. Discounting of the role of internal factors should take place. Nevertheless, when the results are positive in a year with poor economic circumstances augmentation of the role of internal causes is increased, despite possible restrictive external factors.

Therefore, this theory implies that more attributions will be assigned to external causes in a "bad" year than in a "good" year, when the results are negative and more attributions will be assigned to internal causes in a "bad" year than in a "good" year, when the results are positive.

Motivational explanations are made based on the idea that attributions are selected which are positive for the self-esteem by the achievement of success and by a failure, attributions are selected which are protective for one's ego.

When the results are negative, there will be a greater need for ego-defensiveness in a "good" year than in a "bad" year. In a year where the economic circumstances are poor most of the companies will choose attributions related to external causes. This also implies that more attributions are chosen related to external causes in a good year than in a bad year, when there is a failure.

The same principle applies for positive results. There is a greater need to ego-defensiveness if other companies have better performances in a same economic year. In a year where the economic circumstances are poor, and the results positive there will be no need to protect the self-esteem. Therefore, it can be assumed that more attributions for success are related to internal causes in a good year than in a bad year. Yet, the interaction between positive results and different economic circumstances will not be as strong as the interaction for negative results. The tendency to attribute positive results to internal causes will be strong regardless the economic circumstances.

Thus, the choice for informational and motivational explanations has different consequences for the expected pattern of attributions made for positive and negative results in different economic circumstances.

In this thesis, a distinction will be made between motivational and informational explanations for self-serving attributions within Dutch AEX listed companies. This approach will add more value on prior research because it looks beyond factors only related to ego-defensiveness.

1.3 Research question & Sub questions

In chapter 2, the management behaviour as preparer of financial information, is discussed from different theoretical perspectives. Impression management studies, from the preparer (manager) perspective, offers a widespread range of content analysis techniques to examine and to do research on whether and how managers use corporate narrative documents for impression management purposes and what factors might influence this behaviour (Merkl-Davies et al., 2007). Impression managements occur in many different forms. [1] In this thesis, the focus is on the self-serving attributional bias in letters to the shareholders. Former research has provided evidence that in the letter to the shareholders, this bias appears in the explanations issued by management for the financial results. Managers are tended to assign the favourable results to themself, while the unfavourable results will be explained with references to external causes. Therefore, it is essential to study the attributional behaviour that arises in specific social and organizational environments (Aerts, 2005).

Aerts (2005) identifies for example, that an increased accountability demand and retrospective inspection are essential driving forces in defining motivational attributional behaviour that occurs in listed companies (Aerts, 2005). Given these notes, the first research question is indicated as follow:

Do managers of Dutch AEX listed companies show self-serving biases to explain organisational results in the letter to the shareholders?

To answer the research question the next sub-questions must be answered:

Is there a difference in attributional behaviour between companies with good results and bad results in the same year?

How do companies vary in their attribution patterns for favourable and unfavourable outcomes?

What organisational and/or situational factors explain differences in the extent of self-serving biases?

The expected pattern of attributions made as result of favourable and unfavourable results in good and bad economic circumstances will differ to the extent of the use of informational or motivational explanations, which are outlined in section 1.2. Therefore, it is necessary to distinguish the motivational and informational explanations for self-serving attributions in an organizational setting.

Although several studies implies that the self-serving pattern only occurs in circumstances, considered as high ego-defensiveness, it will add value to research of the same pattern will occur due to other factors rather than ego-defensiveness. This leads to the underlying question, which expands previous research on this subject.

Do differences exist in the self-serving attributional bias as may be present in the letter to the shareholders of companies operating in different economic circumstances, and if so, how can these differences been explained to predict the attributional pattern for motivational and informational biases?

1.4 Hypothesis and Methodology

In chapter 4, hypotheses are developed in order to find an answer on the research and sub questions. These hypotheses are tested using empirical research methods using statistical examination tools. To test whether the attributional bias differs among companies in a given good and poor year or given company results as favourable and unfavourable results, the Analysis of Variances (ANOVA) test in SPSS will be used.

There will be enough data to apply the statistical method ANOVA for this sample, because different poor economic years and different good economic years will be analysed for approximately 25 AEX listed Dutch companies. For each of these companies, the annual reports for the years 1998, 2001, 2006 and 2008 will be studied. This results in approximately [2] 25*4 = 100 data points.

The ANOVA is used when there is a categorical independent variable and a normally distributed interval dependent variable when testing for differences in the means of the dependent variable categorized by the rank of the independent variable. The One-Way ANOVA compares the mean of one or more groups based on one independent variable. In this study, there is one independent qualitative variable, which is the "Favourable or Unfavourable performance". This "Performance" variable is divided into two groups:

Attributional bias when favourable results are presented in the annual report.

Attributional bias when unfavourable results are presented in the annual report.

Using the ANOVA analysis, this scenario will be examined in good and poor economic circumstances. When considering the economic circumstances as independent factors good economic year and poor economic year when a company reports favourable outcomes or unfavourable outcomes a two-way ANOVA should be used. The two-way analysis of variance is an extension to the one-way analysis of variance. There are two independent variables (hence the name two-way). In this part of the study there are two independent qualitative variables, which are the reported results in the annual report: "Favourable or Unfavourable" and the "Good en Poor" economic environment related to the attributional bias:

Attributional bias when favourable results are presented in the annual report in a poor economic year.

Attributional bias when favourable results are presented in the annual report in a good economic year.

Attributional bias when unfavourable results are presented in the annual report in poor economic year.

Attributional bias when unfavourable results are presented in the annual report in good economic year.

Additionally, to investigate the available patterns of attributions by Dutch AEX listed companies, contingency tables will be used for each variable and its respective associations. Contingency tables are used for categorical data analysis and they consist of tables of frequencies classified according to two or more sets of categorical variables.

Besides, to examine whether the number of internal versus external related attributions are a function of the interaction between the nature of economic circumstances (good or bad year) and the nature of the outcomes (favourable or not favourable) a regression analysis will be used.

1.5 Data and Sample

The focus in this study relies on the accounting narratives in the letter to the shareholders. There are numerous reasons to investigate the patterns of causal reasoning as subject to the company's performance based on annual reports. Firstly, annual reports contain a (fairly) similar set of data for an expansive sample of companies. Other data, for examples interviews with companies will be less comparable or even not available. Yet, there is much difference in the formats of annual reports.

Therefore, the focus will be primarily placed on the letter to the Shareholders part. This is the most similar part of the annual report, that discusses the performance of the company.

The letters to the shareholder of approximately 25 Dutch AEX listed companies will be examined that finds themselves in good and poor economic circumstances. . Because of comparability considerations only AEX listed companies are involved in this research. For example AMX listed companies (Midcap index), are not included in this test because these companies differ in the size (market capitalization) from AEX listed companies. Involving AMX listed companies in this research might have influenced the results of this thesis since the included variables in this thesis might influence these mid-sized companies in another way. An possibility for further research is to investigate this phenomenon for AMX listed companies individually or perform an investigation where both groups are compared. For each of these companies, the annual reports for the years 1998, 2001, 2006 and 2008 will be studied. This results approximately in 25*4 = 100 data points. With the aid of the stock market index, two points are selected where the economic circumstances are good and two points were the economic circumstances are poor. The definition of a year with good and poor economic circumstances is crucial in this study. Therefore, the selection of the years of each type (good and poor) are made with aim of indices of economic activity like the Gross National Product (GNP) for the Netherlands and the stock market indices (AEX). Chapter 4 discusses extensively the data and sample used for the research in this thesis.

1.6 Delineation of research and research approach

In order to answer the definite research questions, there is a need to outline a theoretical framework, where all concepts and theories will be highlighted. As presented in table 1, accounting research might be approached from different accounting theories. Different theories are developed to investigate managerial behaviour. A positive accounting view studies economic decision making behaviour of different market participants. When taking this concept broader, also capital market aspects and behavioural aspects can be investigated. There are several theoretical approaches to conduct a research in the accounting study. Chapter 2 will provide background information about these theories and their perspective.

The positive accounting approach, which is one of these theoretical approaches, attempts to explain behavioural relationships in accounting. It tries to answer why managers (in the context of this thesis, the preparers of financial information) chose particular accounting alternatives.

This research is entered from the positive accounting research approach, because impression management and the self-serving attribution theories fits the best in this approach in studying and explaining the behaviour of managers in the financial reporting process. In the positive accounting theory, it is assumed that management's self-serving behaviour may be the driving force behind the determination of income and the selection of accounting methods (Gaver and Paterson, 2001; Healy, 1985; Holthausen et al., 1995; Watts and Zimmerman, 1986). Managers have an interest to display information related to the achieved company's performance as well as possible. The reveal of negative or unfavourable results has consequences for the reputation of the management. It can cause a negative impact on the manager's reward (Abrahamson and Park, 1994), or even make post-dismissal employment hard (Harrison and Harrell, 1993).

According to Merkl-Davies et al. (2007), five theories can be distinguished which provides the theoretical underpinning for research from preparers (managers) perspective (see figure 1), which is also comprised by the positive accounting research. These are the agency theory; signalling theory; legitimacy theory; stakeholder theory; and institutional theory. In chapter 2, each of these theories will be described, followed by a discussion of their differences and their relevance in understanding managerial behaviour and their view on impression management, within the positive accounting approach.

Table 1: Accounting theories and approaches

Behavioural

Accounting Approach

Positive Accounting Approach

Market- based

Accounting Approach

Concept/ Perspective

How users of accounting information make decisions and what information they need

Explain behavioural relationships in accounting.

Research focusing on the preparer

Research into the association between publicly disclosed accounting information; and the consequences of the use of this information by the equity investors

Accounting Research Approach

Pays attention to the psychological aspects of decision making

Impacts on judgements and decisions

Answer why managers chose particular accounting alternatives

Managerial behaviour

What is the information content of accounting information?

Impacts on capital market ( prices/returns)

Research

Impacts on judgements and decisions

Managers

Users

Auditors

Managerial behaviour

Preparer

Principal-Agent Relationship

Impacts on capital market ( Prices/returns)

Measuring value relevance ( association study)

Measuring information content ( event study

Figure 1 is a part of table 1 and illustrates the framework of this thesis from the perspective of positive accounting research and is build up as follow:

Figure 1: Thesis theoretical framework

The Agency theory dominates this area of positive accounting research. According to Baiman (1990), both competing schools of thought advocating impression management and incremental information, use assumptions embedded in agency theory (Baiman, 1990). According to Guillomon (2009), is impression management one of the probable appearances of the agency problem. The incremental information school assumes that managers offer discretionary narrative information to overcome information asymmetries between firm insiders and outsiders to lower the cost of capital, thereby enhancing share performance, and thus increasing managerial compensation (Baginski et al., 2000).

According to Merkl-Davies et al. (2007), Smith and Taffler (1992a) and Rutherford (2003) use signalling theory in the setting of the obfuscation [3] hypothesis. Where agency theory centres on poorly performing firms, signalling theory centres on the behaviour of managers in well performing firms who signal this superiority by greater transparency in their disclosure and presentation of information (Merkl-Davies et al., 2007).

1.7 Relevance

A research is conducted with the purpose to add value and new perspectives to current knowledge and perceptions. There are a lot of possibilities to do research on this subject which should add value to the existing science. While several studies evidenced that the self-serving pattern only occurs in circumstances, considered as high ego-defensiveness, it will add value to research whether the same pattern will occur due to other factors rather than ego-defensiveness. This expands previous research on this subject. Former research has provided evidence that in the letter to the shareholders, this bias appears in the explanations issued by management for the financial results. Managers are tended to assign the favourable results to themself, while the unfavourable results will be explained with references to external causes. In this thesis, a distinction will be made between motivational and informational explanations for self-serving attributions within Dutch AEX listed companies. This approach will add more value on prior research because it looks beyond factors only related to ego-defensiveness. This approach would add value to the perspectives and insights of standard setters, accounting professions, auditors, shareholders, governments and other regulatory bodies in practising their profession. From the results of this study lessons might be learned for future practices and engagements by standard setters and other accounting professions when understanding management behaviour in different circumstances. In this research also samples are considered for the years after the years 2005 and 2006 which were important regarding the introduction of IFRS in 2005 in the Netherlands for AEX listed companies and because since the end of the year 2006 external auditors have been required to verify and audit the harmonization of the balance and income statement with the disclosure part of the annual report. This approach would show the effectiveness of these new accounting standards and regulations which has been introduced to limit the practice of impression management in accounting narratives by preparers of annual reports.

1.8 Structure of thesis

The previous section already elaborated in a wide extend to the theoretical framework of this thesis. Chapter 2 discussed this theoretical framework extensively and gives attention to the different accounting research approaches like positive accounting research, behavioural accounting research, and market-based accounting research. Besides, chapter 2 focusses on topics in the accounting theory in explaining managerial behaviour highlighted from "preparers" perspective. This preparers perspective approaches accounting events from the perspective of the "preparer", which are the managers that "prepare" financial statements and other financial reports (narratives). The "preparer" might be influenced by different factors, and therefore they might show specific behaviour. Therefore, Chapter 2 also discusses the driving force behind managerial behaviour and tries to explain this behaviour using different theories within the positive accounting research like Agency theory and signalling theory. Furthermore, chapter 2 discussed the impression management topic and different impression management strategies in financial reporting and the phenomenon "self-serving attributional bias". Within the social psychology, the attribution theory is concerned with the study of explanations people give for events. People could assign events to internal factors such as expertise and commitment as well as external factors such as luck or bad luck. The self-serving attributional theory includes that on the one hand a successful outcome is attributed to internal factors, the so called "self-enhancing bias", while on the other hand failures are attributed to external factors, the so called "self-protecting bias". This dichotomy will be discussed extensively. There will be also paid particular attention to impression management and various theories that will explain this self-serving attributional bias.

Several studies are conducted and various self-serving disclosure practices have been revealed. The most of the studies has focused on the Chariman's statements (Aerts, 2001; Clatworthy and Jones, 2003 and 2006; Smith and Taffler, 1992 and 2000). Nevertheless, also other corporate reports have been studied (Aerts, 2005). The most common impression management techniques in accounting narratives are discussed in chapter 2.

Chapter 3 follows with a literature review on previous studies and analyses conducted in different countries on this topic. The results of previous studies are needed to define theoretical answers to the research questions

Subsequently, in chapter 4 the research design is presented. First, the predictive validity framework will be explained based on this research. This framework provides a sketch of the hypothesis testing process and the explanation on the key determinants of the internal and external validity of research design. Using this framework, the research method and the research model will be described. Thereafter, the empirical part of the thesis will follow. Chapter 4 also provides the methodology behind the research. This chapter gives an insight in the variables that I will use during my research and the data collection.

Thereafter, chapter 5 provides a discussion of the results and findings. The focus will be laid on the assumptions that are made in the theoretical part of the thesis. These findings are the base for drawing a conclusion.

Finally, chapter 6 and 7 finish this paper with a conclusion and with further recommendations based on the findings.

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