Simplifying the complex: 10-K readability and asset structure

Abstract

This study explores the relationship between corporate asset intensity and the readability of 10-K forms within the U.S. lodging industry over the period 1994–2020. Using OLS regressions, the study reveals that as a company's asset intensity decreases, so does the readability of its 10-K form. Additionally, we show that this relationship has become more pronounced since 1998 and is stronger for larger companies or those in the hotel industry. These results suggest that, in light of ongoing discussions and policies surrounding the readability of financial statements, companies produce more comprehensible documentation when their business operations are less specialized. This finding indicates that companies that need to address a more diverse investor base try to be as understandable as possible. This should also lead to social implications in terms of enhanced transparency, improved financial literacy, investor confidence, and a positive impact on corporate responsibility for stakeholders.