The Impact of Graph Slope on Rate of Change Judgments in Corporate Reports

The use of graphs to disclose financial information in annual reports represents a significant dimension of financial disclosure management. Statistical graphics studies demonstrate that the accurate visual decoding of a graph is contingent upon the graph's slope parameter . This article reports two related studies into the slope parameter in a financial reporting context. A laboratory experiment indicates that sub-optimal slope parameters produce distorted judgments of corporate performance and an examination of the graphical formatting choices of 240 large U.K. companies indicates material departures from the optimal slope parameter. Policy implications are discussed.