Does graphical reporting improve risk disclosure? Evidence from European banks

Michael Jones, Andrea Melis, Silvia Gaia, Simone Aresu

Research output: Contribution to journalArticle (Academic Journal)peer-review

5 Citations (Scopus)
81 Downloads (Pure)


Purpose - The purpose of this paper is to examine the voluntary disclosure of risk-related issues, with a focus on credit risk, in graphical reporting for listed banks in the major European economies. It aims to understand if banks portray credit risk-related information in graphs accurately and whether these graphs provide incremental, rather than replicative, information. It also investigates whether credit risk-related graphs provide a fair representation of risk performance or a more favourable impression than is warranted. Design/methodology/approach - A graphical accuracy index was constructed. Incremental information was measured. A multi-level linear model investigated whether credit risk affects the quantity and quality of graphical credit risk disclosure. Findings - Banks used credit risk graphs to provide incremental information. They were also selective, with riskier banks less likely to use risk graphs. Banks were accurate in their graphical reporting, particularly those with high levels of credit risk. These findings can be explained within an impression management perspective taking human cognitive biases into account. Preparers of risk graphs seem to prefer selective omission over obfuscation via inaccuracy. This probably reflects the fact that individuals, and by implication annual report's users, generally judge the provision of inaccurate information more harshly than the omission of unfavourable information. Research limitations/implications - This study provides theoretical insights by pointing out the limitations of a purely economics-based agency theory approach to impression management. Practical implications - The study suggests annual reports' readers need to be careful about subtle forms of impression management, such as those exploiting their cognitive bias. Regulatory and professional bodies should develop guidelines to ensure neutral and comparable graphical disclosure. Originality/value - This study provides a substantive alternative to the predominant economic perspective on impression management in corporate reporting, by incorporating a psychological perspective taking human cognitive biases into account.

Original languageEnglish
Pages (from-to)161-180
Number of pages20
JournalJournal of Applied Accounting Research
Issue number1
Early online date20 Feb 2018
Publication statusPublished - Mar 2018


  • Banks
  • Corporate reports
  • Impression management
  • Incremental information
  • Omission strategy
  • Credit risk graphs

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