The placement of financial statements

Abstract

PURPOSE : The order in which financial statements are presented is discretionary and tends to remain unchanged. However, anecdotal evidence suggests that firm-level incentives affect placement decisions. The purpose of this study is to investigate the determinants and consequences of the placement of financial statements. DESIGN/METHODOLOGY/APPROACH : We incorporate hand-collected and database data for annual results of listed South African firms from 2012 to 2019 in multivariate regression analyses. FINDINGS : Reporting a loss is associated with different placement decisions, and, relatedly, changing from a profit to a loss is associated with changes in placement. Furthermore, changes in the placement of financial statements tend to coincide with executive turnover. Finally, placement decisions have short-term and long-term pricing consequences. RESEARCH LIMITATIONS/IMPLICATIONS : As placement decisions lead to different economic outcomes, consistent investment decisions require processes that are robust to this impression management tool. Furthermore, regulators may wish to consider whether placement decisions should remain discretionary. However, preparers looking to assist optimal decision-making might use the findings to justify closer attention to placement decisions. ORIGINALITY/VALUE : We show that impression management through the placement of financial statements is generalisable and has long-term pricing consequences. Considering that several characteristics of our research setting substantially reduce the likelihood of effective impression management, the placement of financial statements seems to be a powerful impression management tool.