Executive individualism and the tone of firms' annual reports

Abstract

Based on the literature on cross‐cultural psychology, this study examines the effect of executive individualism on the tone of the management discussion and analysis (MD&A) sections of firms' annual reports within one country. By employing an executive's place of origin in northern (southern) China to measure executive individualism (collectivism), we find that executive individualism increases the positive tone of the MD&A sections of firms' annual reports. Further analyses show that the positive relationship between executive individualism and MD&A tone is more pronounced when the executive has a longer tenure or is a local (vs. a non‐local). Finally, we find that executive individualism reduces the informativeness of MD&A in predicting firms' future accounting performance. In sum, the findings of this study suggest that executives' personal traits have important implications for the tone and informativeness of corporate non‐financial reporting.