Memory biases and impression management: the influence of textual salience, mood and recall order on accounting judgements

Impression management in accounting is defined as attempts by management to control and manipulate the impressions of users of accounting information by strategically disclosing information included in the narrative sections of annual reports. In this context, the human memory system plays a key role. Previous studies suggested that the human memory is influenced by biases that may result in distortions of judgement. The aim of this thesis is to examine the role of memory in accounting judgements and decision - making under the context of impression management. To achieve this aim, the thesis includes three papers. Paper one develops a framework outlining the human memory process and explains key biases and errors in memory that may facilitate further biases and errors in judgements and decision - making. Further, this framework distinguishes between online judgements (i.e., judgements made without memory retrieval) and memory - based judgements, proposing a relationship between the biases of the memory system and the two types of judgements. Paper two examines how on - line judgements are influenced by the interactions between the text and readers. Specifically, two biases from the memory system - namely, textual salience and personal mood - are examined as influential factors in the online judgements of investors. The findings suggest embedding textual salience (i.e., highlighted favourable cues) in a chairman's letter can easily distort non - professional investors' attention and judgement and readers' positive moods may further enhance their perceptions of the highlighted favourable cues. Paper three examines how the recall order of non - professional investors and the visual salience embedded in a chairman's letter may influence their memories of previously encoded accounting information and subsequent memory - based judgements. It pays special attention to the effect of memory on impression manipulations and suggests that embedding inappropriate salience (e.g., highlighting favourable cues) or strategically altering readers' recall order (e.g., recalling positive cues first) can easily distort investors' memory and memory - based impressions towards a positive view of a company.