Impression management in bankruptcy: An analysis of the narratives in listed companies

Abstract

Managers tend to use opportunistically corporate narrative disclosure when financial performance is poor.However, there is little research on impression management in situations of extreme distress, such as bank-ruptcy. This paper analyzes ten textual characteristics of corporate reports at two moments in time, thelast year just before entering the legal bankruptcy procedure (sick year) and five years earlier (healthyyear). Specifically, it investigates the management reports of all bankrupt listed companies in Spain from2005 to 2019. Our findings near bankruptcy only show behavior that may be compatible with impressionmanagement in relation to length and positive language. Litigation risk associated with bankruptcy maycondition managers’ attitudes to using narratives in a self-serving manner. Our results are also robust if weonly test the most financially distressed bankrupt companies. This paper contributes to the understandingofimpression managementin companies in conditions of extreme financial distress.