Narrative Analysis

Narrative analysis

Ratio analysis is widely used in practice in business. Nonetheless, ratio analysis has limitations; for instance, it is concerned only with the numbers, not the product quality, customer service, employee morale and so on. Moreover, companies can use window dressing to manipulate their financial statements. According to Griffin (2003), narrative analysis focuses on ‘the ways in which people make and use stories to interpret the world’. Narrative theory argues that people produce accounts of themselves that are ‘storied’ (i.e. that are in the form of stories/narratives). The narrative reports often include the chairperson’s statement, directors’ report, auditor’s report, and operating and financial review.

There is no standard format for the chairperson’s statement, but it often includes the summary of performance, significant events, summary of activities, board membership, strategies and future prospects. The directors’ report must cover the principal activities, any significant changes, any possible future developments and must be consistent with the financial information by law. The auditor’s report must provide an independent review, and expression of opinion on the financial statements of a firm. Additionally, they need to check for consistency between financial statements and narrative reports (Clatworthy and Jones, 2003). The operating and financial review is not obligatory, but most large companies will provide it. It often includes the content and structure governed by Reporting Standard 1 (RS1), development and performance during the period, end-of-year position and the main trends and factors both during the period and for the future.

Impression management is said to be ‘proactive’ when it is designed to enhance a corporation’s image. The strategic purpose is to build an image of the corporation that ingratiates it with its stakeholders so as to gain their approval by conveying conformity to the normative rules of their institutional environment (Dowling and Pfeffer, 1975). By self-promotion, acclaiming the corporation’s roles, including that of being socially responsible, corporations assert their appreciation for institutional norms and values. The purpose of the annual report is to present a good performance of the company to the investors. Within narratives, to maintain public image and to protect management from criticism, variations in linguistic construction from good years to bad are found. Language is used to blur distinctions about the causes of poor performance, presenting the company in a positive light (Jameson, 2000). The annual report attempts to persuade investors to invest in this enterprise. Most companies prefer to emphasise the positive aspects of their performance and blame the external environment for bad news.

Narrative sections of the annual report are considered important in making