An evaluation of psycholinguistic analysis for financial communications in the context of institutional theory

Abstract

There is a growing current trend in the management manipulation of published financial results evidenced by the increasing emergence of high-profile cases of deceptive financial reporting which continuously undermines the financial reporting function.
While previous studies evaluate financial communications in general without appreciating the granular differences between different industries or institutions, this study advances the need to study the ways companies communicate in different industries to enable commensurate comparisons. To do this, this study draws and evaluates insights from research in the areas of institutional theory, institutional logic, isomorphism, impression management, earnings management, deception, financial statement fraud, and linguistic analysis. Overall, this study focuses on advancing the research on psycholinguistics in financial communications at the institutional level, to work in tandem with financial models. This has the potential for evaluating linguistic changes in those communications at an early stage, to illuminate red flags before a crime takes place, and enable the investment community through auditors to manage and prevent corporate fraud.
To create differentiation in the financial communications of industry groups, this study empirically tested the industry characteristics established in prior studies for differentiating between high and low discretion industries. Specifically, this study conducted a comparative analysis on the measurement of managerial discretion intra-industry in the United Kingdom, with the view of obtaining the predictive validity of the underlying model originally tested in the United States of America. This study applied the resulting evidence in testing the differential financial narratives of high and low discretion industries, in the UK, both in the context of published annual reports and through the narratives of analysts meetings. The results of this study showed that the financial communications of companies can better be evaluated and understood in the context of the institutional environment to which each belongs and in the economic contexts they are faced with.

Date of Award	May 2020
Original language	English
Awarding Institution	University of Portsmouth
Supervisor	Richard Trafford (Supervisor) & Lisa Jack (Supervisor)