Do Firms Effectively Communicate with Financial Stakeholders?
A Conceptual Model of Corporate Communication in a Capital Market Context
Authors
- Niamh M. Brennan, University College Dublin, Ireland
- Doris M. Merkl-Davies, Bangor Business School, Bangor University
Abstract
The purpose of our paper is to define what constitutes effective communication between firms and financial stakeholders in a capital market context and to establish the criteria against which effectiveness can be judged. Corporate communication can be considered successful, if it produces the desired or intended results. Accounting researchers, professional accounting bodies and regulatory agencies have defined and measured effective corporate communication in various ways: e.g., how quickly audiences respond to it, whether it results in changes in their attitudes, beliefs, or decision-making, and to what extent different audiences interpret it in different ways. For corporate communication between firms and their shareholders, communicative effectiveness can be
measured by means of market responses or experiments.
The paper proposes seven standards-of-textuality criteria for judging effective corporate communication in a capital market context and, on this basis, for evaluating how well a firm’s economic events and its effects are currently being communicated. It introduces the concept of connectivity as a key aspect of effective communication. Connectivity consists of three components, namely (1) textual connectivity, (2) intertextual connectivity, and (3) relational connectivity. Connectivity refers to the ability to connect different sections of a text (textual connectivity), to connect texts of different time periods or different genres, e.g., by navigation devices and hyperlinks (intertextual connectivity), and to connect the firm with its audiences, e.g., by embedding e-mail addresses and phone numbers (relational connectivity). Prior research is reviewed through the lens of the seven standards of textuality and the key concept of connectivity. The paper addresses how these communication standards could lead to improvements in the communication of a firm’s economic events to financial stakeholders. The paper concludes with suggestions for further research.
Keywords: corporate reporting; accounting communication; standards of textuality; connectivity
The full paper has been published in the annual International Accounting Policy Forum special issue of Accounting and Business Research (volume 48, 2018 – issue 5). The paper can be downloaded from the Taylor and Francis website. The transcript of the practitioner’s response to the paper is also available.