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Journal of Business Management and Accounting , Vol. 1 (1) 2011: 1-15 1 The Relationship between Performance and Graphic Presentation in Unit Trusts’ Annual Reports: Malaysian Evidence * Ram Al Jaffri Saad  , Mohd Azlan Yahya , Md Hairi Md Hussain College of Business, Universiti Utara Malaysia, Malaysia. Abstract This study investigates the use and abuse of graphs in the annual reports of unit trust companies. It is found that 78% of companies use graphs and that 2.1 is the mean number of graphs per graph-using companies. The most commonly graphed fi nancial variables are asset allocation, performance, investment and fund size. Line and pie graphs are more popular than bar and column. Thus, in contrast to previous studies of graphs in annual reports, no relationship is found between performance and graphic presentation in unit trusts’ annual reports. The result may suggest that graphic presentation in unit trust’s annual report is normally dependent on the discretion of company’s management. Keywords: Graphical presentation, impression management, annual report, unit trust 1. Introduction The content of communication between companies and their shareholders has been the subject of considerable research (for example Graves, Flesher & Jordon, 1996; Preston, Wright & Young, 1996 and Beattie & Jones, 2000a). One branch of this literature is concerned with the communication of fi nancial and other information via graphs (Mather, Ramsay & Steen, 2000 and Beattie & Jones, 2000a). Researchers have discovered that graphs help users in many ways. For instance, they argue that graphs allow investors to evaluate company’s fi nancial performance and potential growth of company’s value (Pava & Epstein, 1993 and Pijper, 1993). It may also overcome several weaknesses of narrative texts and traditional alphanumeric table (Friend, 1982; Holmes, 1984; Smith & Bain, 1987; Gibson & Schroeder, 1990 and Coles & Rowley, 1997). * Corresponding author. Tel: +604-9283735 Fax: +604-9285762 E-mail address : ram@uum.edu.my

2 Journal of Business Management and Accounting , Vol. 1 (1) 2011: 1-15 Although graphs have been used intensively in annual reports, most companies use them to disclose only selected information (Neu, 1991 and Beattie & Jones, 1992). Graphs are used as one of the mechanisms to convince the users of annual reports that the company is managed ef fi ciently (Beattie & Jones, 1992). According to Houghton and Smith (2003), graphs are used to in fl uence shareholder behavior. Previous studies show that companies give priority to information on performance such as sales, pro fi t, earning per share and dividends and used various types of graphs to highlight these (Steinbert, 1989 and Beattie & Jones, 1992, 2000a). The relationship between performance and graphic presentation has become a main focus of the researchers and has triggered their interest to understand why companies disclose information using graphs. The selective inclusion of graphs has been studied extensively in the context of the use of graphs in annual reports (Johnson, Rice & Roemmick, 1980; Steinbert, 1989; Beattie & Jones, 1992; 1997; 1999; 2000a; 2000b; Green, Kirk & Rankin, 1992; Canadian Institute of Certi fi ed Accountant, 1993; Mather, Ramsay & Serry, 1996 and Mather, Ramsay & Steen, 2000). In general, these studies have found evidence of signi fi cant use of graphs in annual reports. Beattie and Jones (1992) argued that selectivity in the use of graphs could lead to a sub-optimal decision by users of fi nancial information. In Malaysia, studies on graphic presentation in annual reports are still at infant stage. A number of studies were carried out to investigate the use and abuse of graphic presentation in listed companies on Bursa Malaysia (Shamharir, Md. Suhaimi & Nurwati, 2000; Mohd. Diah & Azhar, 2001; Nor Asiah, Tau fi k & Narimah, 2004; Ram Al Jaffri, 2004; and Azham & Ram Al Jaffri, 2006) and the users’ perception towards graphical information in corporate annual reports (Rosiatimah, Hasnah & Sofri, 2006). The review of these studies reveal that there is evidence of signi fi cant use and abuse of graph in annual reports and most of the companies are likely to use graph only when their performance is satisfactory (Shamharir, Md. Suhaimi & Nurwati, 2000; Mohd. Diah & Azhar, 2001; Nor Asiah, Tau fi k & Narimah, 2004; and Azham & Ram Al Jaffri, 2006). While a good deal of research on the graphic presentation in annual reports has focused on companies, there has to date been little research on this subject in the context of other settings. Thus, this study differs from previous studies in two respects. First, unlike previous studies which mainly focus on public listed companies, this study focuses on unit trusts, which are another important component of the Malaysian capital market. Secondly, it attempts to discuss the practice of impression management in relation to graphic presentation in unit trusts’ annual reports. Hopefully this study will add to the literature on voluntary disclosures in general and graphic presentation in particular. It seeks to contribute to a greater understanding of the role of graphs in communicating accounting information. In addition, it might be useful to enrich the discussion on impression management by providing a different point of view.

The Relationship between Performance and Graphic Presentation in unit Trusts’ Annual Reports: Malaysian Evidence: 1-15 3 We address two speci fi c questions to provide a direction for this study. Do unit trusts give due attention to graphic presentation in their annual reports? Does performance of a unit trust in fl uence the extent of graphic presentation in their annual report? Thus, this study has two main objectives. Firstly, this study seeks to explain the actual practice of graphical presentation by unit trusts. Secondly, it seeks to predict the relationship between the extent of graphical presentation and the unit trust performance. This study begins with an introduction to graphic presentation in annual reports, followed by a section that discusses the development of unit trust industry in Malaysia to highlight the importance of this study. Section three reviews the literature on the importance of graphical presentation and the issue of impression management in graphical presentation. Explanation relating to how the hypothesis is developed is in section four. Sections fi ve and six discuss the research method and the results of this study. Finally, the last section provides a summary of the study and offers suggestion for future research on graphic presentation in unit trusts. 2. The development of unit trust industry in Malaysia In 1959, the fi rst unit trust was established known as the Malayan Unit Trust Ltd. Since then, the development of this industry has experienced three phases of growth. The fi rst phase (1959-1979) shows a slow growth where only 18 unit trusts were launched. This might be due to ignorance of public towards the importance of long-term investment. However, the subsequent decade was considered as the turning point for the unit trust industry in Malaysia. The introduction of New Economy Policy that emphasizes on equal distribution of wealth among various ethnic groups in Malaysia was seen as the contributive factor to the growth of the industry. The Malaysian government had identi fi ed unit trust as one of potential mechanisms to enhance the bumiputras’ shareholdings in listed companies. Hopefully, it will reduce big economic gap between bumiputra and non-bumiputra. To achieve this objective, the government had played important and active role in this industry by launching several government-sponsored unit trusts for bumiputra in early 1980s. In 1981, for example, Permodalan Nasional Berhad (government agency) launched two speci fi c unit trusts namely Amanah Saham Bumiputra and Amanah Saham Nasional and both had received overwhelming response by bumiputra. This led private fund management companies keen to offer new unit trusts to capture the market of non-bumiputra. As a result, there were 11 unit trusts operating in the market at the end of the decade. From the year 1990 until now, the unit trust industry has experienced an amazing growth. The introduction of Islamic capital market and the economic crisis in the mid 1990s were considered as factors that accelerated the growth of unit trusts. In the context of Islamic capital market, the government had included Islamic unit trust as one