Manipulating the Narrative : Managerial Discretion in the Emphasis of GAAP Metrics in Earnings Announcement Press Releases

We analyze management's emphasis (i.e., prominence, frequency, and textual highlighting) of GAAP metrics within the narrative portion of earnings announcement press releases; we assess whether management uses emphasis opportunistically, informatively, or both. We find that management emphasizes informative (i.e. persistent and value-relevant) metrics, but only when the metrics portray favorable performance, indicating that managers are selectively informative. In contrast, managers appear broadly opportunistic, in that they emphasize favorable metrics regardless of metric informativeness. Despite these efforts, analysis of subsequent stock returns reveals no evidence that managerial opportunism successfully misleads investors. These results provide important insights into managerial discretion over a largely unregulated aspect of disclosure. Overall, our results indicate nuances in management's discretionary emphasis choices that extend beyond earnings management and non-GAAP reporting to the nature of the discussion of GAAP metrics in the narrative portion of earnings announcements. Our results also demonstrate managerial bias in the implementation of the SEC's Plain English guidelines