Investor and Firm Perspectives on Impression Management in Earnings Press Releases: Insights from TSX Venture Exchange Firms

Abstract

The TSX Venture Exchange, one of the global leaders in providing opportunities to raise equity capital for small and emerging firms, plays an important role in the Canadian economy. However, TSX Venture Exchange firms have not yet received significant attention from academic scholars. This study examines 1,317 earnings press releases (EPRs) of TSX Venture Exchange firms to investigate whether, and how, low-visibility firms engage in impression management practices. It also explores investor perspectives on impression management by examining stock market and online investment discussion board reactions to apparent impression management. Overall, findings of this study indicate that low-visibility firms use various impression management strategies such as tone management, readability manipulation, causal reasoning, and the emphasis of positive performance by thematic manipulation, reinforcement, and repetition in their EPRs. Results of stock market reaction tests suggest that tone management and emphasis of positive performance positively affect cumulative abnormal return around the issue of EPRs; however, these effects dissipate or reverse in the longer-term. Similarly, online investment board participants are initially drawn to EPRs which emphasize positive performance and abnormally high positive tone around the issuance of EPRs. However, in the longer-term, discussion participants pay less attention to those EPRs and switch their interest to EPRs with higher reading complexity. Drawing on literature on impression management, firm visibility, and investor reaction, this study makes four important contributions to the existing literature. First, it exclusively focuses TSX Venture Exchange firms to study impression management practices of low-visibility firms. Second, this research offers a broad examination of firms' engagement in impression management practices by examining several impression management strategies together. Third, this study combines both the firm and the investor perspectives on impression management to effectively study impression management and its consequences. Finally, it analyzes online investment discussion board data to explore investors' reactions to apparent impression management, in addition to investigating stock market reaction. This study benefits low-visibility firms, individual investors and academics by expanding their knowledge of impression management and its consequences. Findings can also help financial regulators make policy decisions and educate investors on impression management and its consequences.