International Journal of Business and Social Science Vol. 11 • No. 4 • April 2020 doi:10.30845/ijbss.v11n4p1 1 Voluntary Disclosure of Stock Performance in Management Reports: Italian Evidence Giuseppe Ianniello, PhD Professor of Accounting and Business Administration University of Tuscia – Viterbo DEIM - Department of Economics, Engineering, Society and Business Via del Paradiso, 47 01100 Viterbo (Italy) Giuseppe Galloppo, PhD Assistant Professor of Finance University of Tuscia – Viterbo DEIM - Department of Economics, Engineering, Society and Business Via del Paradiso, 47 01100 Viterbo (Italy) Abstract We explore financial information disclosure patterns of firms with high and low stock performance. In particular, the paper focuses on voluntary disclosure of stock performance in the Management report, the narrative section of annual report. We conducted an empirical analysis on a sample of Italian listed companies. We found that companies with high stock performance are more likely to voluntarily disclose this information. Thus, confirming that companies may select information to disclose in the framework of impression management. Keywords: Management Report, Information disclosure, Stock performance disclosure, Italy. 1. Introduction The purpose of this paper is to investigate the discretionary information decision in the narrative section of annual report, i.e. the Management Report (Management Discussion and Analysis in US; Operating and Financial Review in UK). We focus on managerial behavior in describing annual performance, namely, share return: voluntary disclosure in the narrative section of annual report. For this reason, we analyze the disclosure of stock performance in the Management Report. Previous research tried to emphasize different disclosure choices in firms with high and low financial performance (e.g. Clatworthy and Jones, 2006).We consider a different performance measure: stock price return. This approach is novel in literature, because previous scholars focused on performance stemming from the income statement rather than on stock returns in their investigations of a similar topic (see Section 2). However, as additional analysis, we rearrange our sample by considering the change of earnings before interest and taxes (Ebit) as indicator of profitability. Annual reports contain quantitative and qualitative narrative information in order to help readers in their decisions. That explains why companies should “use plain language, only well defined technical terms, consistent terminology and an easy-to-follow structure” (Financial Reporting Council, 2009, p.48).According to general guidelines of IASB (2010), management should provide users with a comment and analysis of amounts presented in financial statements, specifically the entity‟s financial position, financial performance and cash flows. However, “management commentary should also include information about the entity and its performance that is not presented in financial statements but is important for management of the entity” (IASB, 2010: par. 16). While management is generally trying to explain a firm performance (presented in financial statements) in the narrative section of their annual reports, there is some space to analyze the performance not presented in financial statements. It is unknown, which set of variables drives voluntary disclosure specifically, so we explore the role of stock performance. We contributed by trying to analyze firms‟ disclosure patterns when they have high and low stock performance. We collected information about disclosure of stock performance. This type of information is not mandatory in the Italian context, so we offer an opportunity to eventually detect self-serving behavior, in disclosing and commenting stock performance. To this end, we observe if stock performance disclosure is different in group of companies with high and low stock performance. The theoretical framework we use refers to impression management in the preparer perspective (e.g., Merkl-Davis and Brennan, 2007).