The association between optimism and future performance: Evidence of impression management from chief executive officer and chairperson letters

Abstract

Purpose: This article examines the sincerity of two sets of narrative disclosures in the letters of chairpersons (CPs) and chief executive officers (CEOs) to stakeholders. The study sought to compare the level of optimism between the two letters and whether such optimism (as per its link to future performance) was sincere or not and the differences in the level of sincerity between the two letters.

Design/methodology/approach: Chairpersons’ and chief executive officers’ letters as contained in annual reports for firms listed on the Johannesburg Stock Exchange over a 4-year period were analysed. Textual analysis software was used to measure optimism in 200 CPs’ and 200 CEOs’ letters. The level of optimism was compared using mixed-model repeated measures analysis of variance. Sincerity was operationalised as the positive association between the level of optimism and future performance and a negative association as evidence of impression management. Two-way linear fixed effect regression models were used.

Findings: This study found that CPs’ letters were more optimistic than those of CEOs’. More specifically, the results point to impression management in both CPs’ and CEOs’ letters, with only CPs’ letters indicating a significant negative association.

Practical implications: Relative to the CEOs, CPs may use more optimistic writing styles to sway stakeholders who are anticipating worse-than-expected future performance; readers should be aware of the potential consequences of such practices.

Originality/value: The results provide support for the obfuscation hypothesis as a theoretical underpinning regarding CPs’ and CEOs’ letters. Overall, the results question the ability of such narratives to lessen agency costs.