AAA Spark Meeting of the Regions

Management’s Hoptimistic Tone and Financial Reporting Quality: The Combined Role of Hope and Optimism

• In Event: Managerial Influence on Reporting Quality

Abstract

This paper studies the influence of specific elements of management’s psychology on financial reporting quality (FRQ), which is generated by the dynamic interaction of the various components of an organization’s internal control system. Specifically, this paper examines the combined influence of hope and optimism in top management’s tone on firms’ FRQ. Prior literature reported conflicting findings about the effect of optimism on FRQ. This paper adopts the findings of the psychology literature on positive psychology, which suggests that researchers should examine hope and optimism together (i.e., hoptimism) when looking at their effects. Based on such evidence, this study creates a combined measure of top management’s hopeful and optimistic tone (i.e., hoptimism) and argues that managerial hoptimism positively influences FRQ. This study utilizes multivariate regression to test the hypotheses and analyze the arguments presented. Additionally, this study combines archival data with machine learning textual analysis using Python to decipher the influence of the constructs. This study would provide valuable information to managers, investors, auditors, and researchers.

Author

• Iyad Rock, University of Wisconsin–Whitewater