A new study found a discrepancy in how managers perceived a CEO who announced financial restatements via video compared to text. After viewing messages in each medium, managers were asked to rate the trustworthiness of a CEO who announced changes. Published in the March/April issue of The Accounting Review,  the study suggests that companies needing to issue restatements should do so via video only if they take responsibility for the bad news. The authors explain:

"Announcing a restatement online via video is likely to benefit firms only when top management apologizes for the restatement and accepts responsibility by making an internal attribution for the error. When management apologizes but denies responsibility by making an external attribution, announcing a restatement online via video is likely to have unintended negative effects on investors."

The messages varied by only one sentence in the middle of the statement:

• "We are fully responsible for this error because we relied on the advice of our internal lease accounting expert when preparing our financial statements." OR
• "We are not responsible for this error because we relied on the advice of external lease accounting experts when preparing our financial statements."

According to the study, using video is risky, but there is an upside. Managers who watched the video gave the CEO a trustworthiness rating of 6.15 out of 7 for the first statement and a mere 4.0 for the second. Managers who read text of the statements gave similar ratings for both: 4.75 and 4.55, respectively.

This study had a professional actor play the role of the CEO. For real situations, corporate communicators likely will consider many other factors before choosing video or text, including how well the CEO will come across to an audience of investors.

For more detail, see the study, "Using Online Video to Announce a Restatement: Influences on Investment Decisions and the Mediating Role of Trust."

Discussion Starters: 

• What do you think accounts for the discrepancy between a video and text?
• What would you advise a CEO to do when he or she has to issue a restatement because of an internal error? Should he or she risk creating a video? What would factor into your decision?
• If a company has to issue a restatement because of an external error, should the CEO take responsibility as if it were an internal error in hopes of garnering more investor support? (Careful!)