Impression Management and economic cycles: a study on Brazilian companies in financial distress

Objective: This study aims to analyze the effects of economic cycles on the relationship between financial distress and impression management in Brazilian companies. Method: The analysis used data from companies listed on the Brazilian stock exchange between 2010 and 2022, applying content analysis, descriptive statistics, correlation tests between variables, and panel data regression with the support of Python and R. The Schumpeter (1939) model was used to determine the economic cycle, classifying the phases based on variations in Gross Domestic Product (GDP) during the period. The Z-Score model of Altman et al. (1979) was applied to assess financial distress, adapted to the companies in the sample as a means of predicting bankruptcy. For the analysis of impression management, the narrative tone metric developed by Henry (2008) was applied to 2,640 management reports. Results: The findings showed that companies in financial distress presented management reports with a more negative tone. During the recession and contraction phases of the economic cycle, statistical significance was found in the association between the variables of interest. These results support the assumptions of Signaling Theory, as companies seek to disclose information in a timely manner, anticipate negative outcomes to mitigate investor uncertainty, and use disclosure as a means to reduce information asymmetry. Contributions: The results assist information users—such as investors, creditors, and regulatory agencies—in identifying impression management practices and serve as indicators of accounting information quality, contributing to more assertive decision-making.