Annual Report Readability Research Articles

Effect of earnings management and cash holdings on annual report readability: Evidence from top Indian companies: Short title: Effect of earnings management and cash holdings on annual report

The present study explores the impact of earnings management on the readability of management discussion and analysis (MDA) section of annual reports of 384 Indian firms for 1,160 firm-years. It also explores the moderating behaviour of cash in explaining the association between earnings management and MDA readability. Using fixed-effect regression, the study finds that firms that manage earnings by meeting or just beating the previous year earnings publish complex MDAs. Moreover, it documents the positive moderating role of cash in explaining this relationship. Multiple robustness tests confirm our findings across different years including the COVID-19 crisis period.

The role of female directors in family firms’ annual report´s readability

PurposeThis paper investigates the impact of board gender diversity on the readability of the annual reports of family-controlled public companies.Design/methodology/approachGrounded in the premises of the restricted and extended views of the socioemotional wealth (SEW) approach and executive power theory, this paper explores the ways in which family-affiliated female directors influence report readability in a sample of 133 publicly traded US companies listed in the Fortune 1,000. We use the system GMM estimator, which deals with two key sources of endogeneity by controlling first for reverse causality, using the lags of the endogenous variables as instruments, and then for omitted variables, capturing the individual effect.FindingsOur analysis confirms that the significant enhancement in annual report readability is associated with the presence of female family directors, particularly those who are insiders within the company. In contrast, non-family female directors and family outsider directors appear to have a negative impact on annual report readability.Originality/valueWhile scholars have increasingly focused on variations in annual report readability among family firms, the contribution of female directors to this phenomenon has received minimal attention. In our study, we integrate the theories of restricted and extended SEW perspectives with the theory of women’s executive power within the board. This integration is essential for considering two critical factors: firstly, the primacy of their SEW objectives, and, secondly, their legitimacy within the board.

Better or worse? Revealing the impact of common institutional ownership on annual report readability

Based on the data on Chinese listed companies over the period from 2007–2021, the relationship between common institutional ownership (CIO) and annual report readability (ARR) is revealed in this paper. The results show that CIO reduces ARR. After a series of robustness tests, this conclusion continues to hold. Further analyses indicate that in situations where analyst attention, industry concentration, and media coverage are high, the above negative relationship is more significant. In addition, operational risks play a mediating role between CIO and ARR. This study enriches the evidence supporting the collusive manipulation effect of CIO.

To Change or Not to Change: The Informativeness of REIT Annual Reports

Increasingly similar corporate disclosures may fail to provide potential investors with adequate information about a company to facilitate astute, informed, and/or rational decision making. In light of this repeatedly expressed SEC concern, the current investigation uses a sample of 1,910 annual report (10-k) filings by 234 separate equity REITs from 2000-2020 to examine the impact of year-over-year linguistic similarity on the perceived information content of corporate disclosures. Consistent with the aforementioned concerns, we document a significant increase in the degree of REIT annual report similarity over time. Despite this trend, we find that innovations in annual report disclosures remain directly related to observable changes in both the operational complexity and financial position of the firm. Furthermore, these innovations engender significant market reactions including changes in options trading activity, annual report readability, and the firm’s cost of equity capital. Lastly, these findings are both robust to the inclusion of alternative information channels and are significantly more pronounced within informationally opaque market settings. In sum, we find REIT annual reports remain a value-relevant source of information for market participants.

Employee treatment and annual report readability

PurposeIn this study, we examine the relation between employee treatment and annual report readability, which is measured as a reading difficulty score.Design/methodology/approachWe use regression analysis to explore the impact of employee treatment on annual report reading difficulty.FindingsWe find a significant negative relation between employee treatment and reading difficulty, which suggests that annual reports of firms with better employee treatment are easier to read and understand (i.e. more readable).Originality/valueOur study contributes to a more thorough knowledge of annual report readability and our findings may be of relevance to accounting standard setters and investors.

Being alert to the contingency: how environmental turbulence impacts annual report readability

ABSTRACT This study examines the association between environmental turbulence and annual report readability. We argue that companies operating in highly turbulent environments may exhibit lower annual report readability due to the industry’s increased environmental uncertainty. Using a sample of US firms from 1993 to 2019, we find that industry technological and market turbulence are negatively related to annual report readability. This study demonstrates the importance of considering environmental turbulence in understanding annual report readability.

Annual Report Readability and Information Disclosure Quality: Evidence from Tunisia

Annual Report Readability and Information Disclosure Quality: Evidence from Tunisia

Annual report readability and earnings management of financial distressed firms: the moderating role of ownership concentration in India

Annual report readability and earnings management of financial distressed firms: the moderating role of ownership concentration in India

Does the annual report readability improve corporate R&D investment? Evidence from China

Does the annual report readability improve corporate R&D investment? Evidence from China

Does annual report readability influence the design of SEOs?

Motivated by the rapid growth in non-quantitative corporate disclosure and seasoned equity offerings (SEOs) in the U.S., we take a fresh look at the decision-making process behind accelerated offerings in SEOs, with a specific emphasis on the readability of annual reports within 10-K filings. In particular, our study explores whether readability of annual reports affects the choice of SEOs methods. Using a hand-collected sample of 3143 instances of seasoned equity issues between 2002 and 2021, we show a significantly positive relation between readability scores and accelerated offerings. These results hold across various robustness tests. We further reveal a negative relationship between abnormal operating performance and long-term stock performance following the announcements of SEOs, demonstrating that: firstly, SEOs provide valuable insights into future earnings; and secondly, these insights have a lasting impact on stock performance. Overall, our evidence strongly highlights the substantial influence of annual report readability on the design of SEOs, emphasizing the critical importance of conveying financial information concisely and effectively to the market.

The Effect of Annual Report Readability, Carbon Emission Disclosure and Green Accounting Practices on Company Value

This study aims to analyze the effect of annual report readability, carbon emission disclosure and green accounting practices on company value with the research object of manufacturing companies listed on the IDX in 2020-2022. The approach used in this study is a descriptive quantitative using multiple linear regression. The sample of this study were 38 mining companies with an observation period of 3 years resulting in 114 research data. Data testing was carried out by partial analysis using the eviews tool. The results of this study found that the annual report readability, carbon emission disclosure and green accounting practices had a positive and significant effect on company value. This indicates that the easier an annual report is to read, the higher the quality of information received by its users, especially stakeholders, so that it greatly influences the decision making of investors. In addition, green accounting practices and carbon emissions disclosure is the first step that companies can take to minimize environmental problems faced by companies. This research is different from previous research, this study tries to combine how easy it is to read financial statements and also how environmental accounting and carbon emissions disclosure by companies can increase company value.

How does earnings management impact annual report readability?

This research investigates the relationship between earnings management and annual report readability for companies listed on the Singapore Stock Exchange (SGX). Research on earnings management (EM) and the ability to read the annual report play a crucial role for investors as well as other stakeholders. The extent of earnings management can be determined based on annual reports. The analysis is based on the data of 251 domestic companies listed on the SGX from 2016 to 2021. Regression analysis of panel data was conducted using STATA version 15 software in this research. The result shows that companies with more aggressive earnings management tend to make annual reports more complex and, hence, less readable. In addition, the study also shows that the impact of earnings management on the annual report readability for enterprises of different sizes, profits, ages, and levels of financial distress is the same. Theoretically, the findings of this research for a developed financial market in Asia (Singapore) further confirm and reinforce the findings about the relationship between earnings management and report readability. In addition, one may draw important practical implications for investors as well as stakeholders in general; in particular, stakeholders may have more evidence for suspicions about earnings management whenever the annual reports become more difficult to read and understand.

Short selling and readability in financial disclosures: A controlled experiment

AbstractWe examine the causal effect of short‐selling on a firm's annual report readability using regulation SHO, which relaxes short‐sale constraints for a random sample of pilot stocks. Pilot firms produce significantly less readable annual reports than nonpilot firms during the experiment period. Our results are more pronounced for firms that receive less investor attention and those with poorer growth prospects. Furthermore, pilot firms increase the use of uncertainty words in annual reports during the experiment period. Our results suggest that firms produce less transparent financial disclosures that are more costly for investors to comprehend when short‐sale constraints are less rigorous.

Annual report readability and firms’ investment decisions

Annual report readability and firms’ investment decisions

Annual report readability and trade credit financing: Evidence from China

The clarity of an annual report is crucial for stakeholder understanding and trust, notably so in China, which is characterized by its unique high-context culture. This study investigates the impact of annual report readability on trade credit financing in Chinese listed companies. Beyond the measure derived from the Fog index, we employ innovative methodologies, including machine learning and the application of Chinese linguistic “hedge words”, to refine the understanding of the relationship between annual report readability and trade credit financing. Our findings indicate that poor readability significantly restricts firms’ access to trade credit financing, particularly for companies with limited international engagements and those with weaker product market power. These results remain consistent across different measures of report readability and trade credit financing.

Seeing is Believing: Annual Report Readability and Analyst Site Visits in China

Seeing is Believing: Annual Report Readability and Analyst Site Visits in China

Annual Report Readability and Opportunistic Insider Selling—Evidence from China

ABSTRACT Using a panel dataset of Chinese A-share listed firms during 2007–2021, we specify a fixed-effects model to examine whether and how annual report readability affects opportunistic insider selling. Our empirical findings show that lower readability of annual reports induces insiders to make more opportunistic sales. Further analysis reveals that stock overvaluation is the channel through which the readability of annual reports affects opportunistic insider sales. In addition, this effect is more pronounced among firms with less analyst coverage, higher retail concentration, and non-SOEs.

Corporate Social Responsibility and Intellectual Capital and Their Influence on Annual Report Readability: A Literature Review

This research aims to determine the relationship between Corporate Social Responsibility (CSR) performance, Intellectual Capital, and the readability of annual reports as a key communication tool between companies and stakeholders. This research uses a qualitative literature review approach by analyzing several previous studies related to this topic. The results of the analysis show that companies that are actively involved in CSR practices and have strong Intellectual Capital tend to present annual reports with a higher level of readability. This optimal readability has a positive impact on the understanding of various stakeholders, including investors and creditors, which in turn can support better decision-making. The implication is that companies can utilize CSR practices and Intellectual Capital development as a strategy to increase the readability of their annual reports. Therefore, increasing transparency, readability and clear disclosure of information in annual reports can contribute positively to a company's reputation and support long-term business growth. Recommendations for companies involve paying attention to the regulatory and disclosure reform initiatives that regulators have implemented to ensure disclosure is effective and affordable for all stakeholders

Does product market competition influence annual report readability?

We study product market competition’s influence on annual report readability. As competition increases in an industry, our findings show that firms reduce the readability of their annual reports. We further document that the impact of competition on annual report readability is stronger for research and development (R&D)-intensive firms, for firms that have a higher level of trade secrecy (i.e. proprietary information), and for firms with higher levels of CEO performance-based incentives. Overall, our findings highlight the importance of the proprietary cost effect of competition on annual report readability.

Energy hedging and annual report readability

PurposeUsing a sample of oil and gas firms in the USA, the study examines the relation between the presence of hedging and annual report readability.Design/methodology/approachThe authors use regression analysis to examine the relation between the presence of hedging and annual report readability.FindingsThe authors find that annual reports of firms with the use of hedging are less readable (i.e. difficult to read and understand). The authors also find that the primary results are more pronounced for firms with a higher level of business volatility.Originality/valueThe study contributes to the finance literature on the use and value of hedging and to the accounting literature on the determinants of annual report readability. The Securities and Exchange Commission (SEC) has persistently asked companies to improve the readability of their disclosures to stakeholders (SEC, 1998; 2013, 2014). Hence, the study not only identifies a potential determinant (i.e. hedging) that may influence the level of readability but also supports the current regulatory policy by the SEC, which is encouraging companies to improve readability.