Research by H. Scott Asay (University of Iowa), Robert Libby and Kristina Rennekamp (both Cornell University) showed a significant correlation between these factors. In the primary experiment with experienced managers, participants provide reports that are significantly less readable when firm performance is bad than when performance is good, particularly when participants have a strong self-enhancement motive in the form of a reporting goal to portray the firm as favorably as possible. In the supplemental experiment, authors provide some evidence that participants provide less readable bad news reports when they have a reporting goal to portray the firm in the least unfavorable light possible, rather than in as favorable a light as possible. In both experiments, the results do not appear to be driven by intentional obfuscation. In order to frame poor performance in a positive light, managers focus more on the future, provide causal explanations for poor performance, and use more passive voice and fewer personal pronouns.
Read the full paper “Firm performance, reporting goals, and language choices in narrative disclosures”(2018) by H. Scott Asay, Robert Libby and Kristina Rennekamp, Journal of Accounting and Economics (Volume 65, Issues 2–3, April–May 2018, Pages 380-398) at ScienceDirect.