The Interplay of Earnings Manipulation and Impression Management in the Top 40 Johannesburg Stock Exchange (JSE) Companies

Abstract

Corporate reporting complexity has surged in response to heightened demand for transparency, raising concerns about potential manipulation in company communications. This study explores the relationship between earnings management (EM) and impression management (IM) in the integrated reports of the top 40 companies listed on the Johannesburg Stock Exchange (JSE). The study employes micro panel data with a balances structure, as each firm has observations across all time periods. A fixed effects regression model was applied to panel data covering a 10-year period (2014-2023), with the Hausman test used to determine the appropriate model between fixed and random effects. The results indicate a positive association between IM and EM, revealing that complex language in reports often conceals earnings manipulation. While the study acknowledges the use of both IM and EM among JSE-listed firms, it underscores the need for greater scrutiny to ensure transparency and safeguard stakeholder interest, without suggesting deliberate misconduct by all firms. This research adds to the body of knowledge on corporate disclosure practices in South Africa, highlighting potential risks in corporate narrative reports that could obscure a company’s true financial condition.