Financial statement comparability and accounting fraud

Blanco, Belén; Dhole, Sandip; Gul, Ferdinand A.

doi:10.1111/jbfa.12652

Cited by 9 publications

(10 citation statements)

References 65 publications

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“…FOG: is a proxy of financial statements readability. In this study, Fog index is measured based on the studies of Blanco and Dhole (2017) and Lim et al (2018). Li (2008) estimates FOG as (words per sentence + percent of complex words) × 0.4 where words with three syllables or more are deemed as complex words.…”

Section: Methodsmentioning

confidence: 99%

The impact of business strategy and annual report readability on financial reporting quality

Arianpoor

Sahoor

2022

JABS

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PurposeThis study aims to mainly explore the impact of business strategy and annual reports readability on financial reporting quality in Tehran Stock Exchange (TSE).Design/methodology/approachThe sample comprised 160 companies listed in TSE from 2014 to 2020. Five proxies (including two accounting-based attributes and two market-based attributes) were used to measure financial reporting quality. In this study, cost leadership and differentiation strategies were considered and Fog index was used to measure the annual report readability.FindingsThe results showed that in all methods of calculating financial reporting quality, cost leadership strategy, differentiation strategy and annual report readability had a positive and significant impact on financial reporting quality. Also, only at the high level of the differentiation strategy, the annual reports readability influenced financial reporting quality. In addition, at all levels of high and low annual report readability, cost leadership strategy affected financial reporting quality, but only in companies with a high annual report readability, the differentiation strategy affected financial reporting quality. Only for companies with a low readability, the annual report readability affected financial reporting quality.Originality/valueTo the best of the authors’ knowledge, no study had examined the impact of business strategy and annual report readability on financial reporting quality at the core of the present study. Furthermore, little was known about the strategic choices made in Iran. So, the research filled this gap in TSE. This study provided insights for policymakers to enhance the readability and reduce the complexity of annual reports.

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Section: Methodsmentioning

confidence: 99%

The impact of business strategy and annual report readability on financial reporting quality

Arianpoor

Sahoor

2022

JABS

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“…Previous studies find that management is more willing to increase the extent of disclosure if their firms have high performance (Lang & Lundholm, 1993; Schrand & Walther, 2000). Blanco and Dhole (2017) find the negative association between financial reports readability and the probability of doing fraud in the future. They also find an increase in the readability of the financial statements after frauds are revealed, which may be due those companies are trying to have investor's trust by being more transparent.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

Financial reporting complexities: Association with accounting expertise of board and audit committee

Siregar,

Harahap

2023

J Corp Accounting Finance

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The purpose of our study is to examine the financial reporting complexity of listed firms in Indonesia and the association between the financial reporting complexity and the accounting expertise of boards (Board of Directors/BOD and Board of Commissioners/BOC) and audit committee members. We use samples of listed firms in Indonesia over the period from 2013 to 2019. We find that financial reporting complexity is negatively associated with the accounting expertise of the BOD, BOC, and audit committee. These results indicate that companies do not try to engage in higher accounting expertise to mitigate the unfavourable impact of financial reporting complexity and that companies tend to use the financial reporting complexity to obfuscate the financial reporting. The novelty of our study is developing an aggregate measure of the financial reporting complexity that has not been used in extant studies. We also have not found any previous studies examining this issue in emerging countries, including Indonesia. The previous study has examined similar issues in the USA, where the USA is a developed country with a high level of investor protection. The varying levels of investor protection may affect the results.

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“…Moreover, Bonsall and Miller (2017) suggest that the Bog index provides a comprehensive measure of a document's plain English problems such as sentence complexity, among others. Blanco and Dhole (2017) suggest that lower readability in annual reports leads to a higher volume of corporate fraud and less trust from investors. Empirical research shows that the readability of 10-K reports is negatively associated with the cost of debt, the stock price crash JAAR 24,4 risk (Ertugrul et al, 2017;Kong et al, 2020) and regulatory review risk (Hesarzadeh and Bazrafshan, 2018).…”

Section: Literature Review and Hypotheses Development 21 Readability ...mentioning

confidence: 99%

“…Blanco and Dhole (2017) suggest that lower readability in annual reports leads to a higher volume of corporate fraud and less trust from investors. Empirical research shows that the readability of 10-K reports is negatively associated with the cost of debt, the stock price crash risk (Ertugrul et al.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

CEO gender and readability of annual reports: do female CEOs’ demographic attributes matter?

Vahdati

Oradi

Nazari

2022

JAAR

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PurposeThis study examines the association between chief executive officer (CEO) gender and the readability of annual reports by considering some demographic attributes of female CEOs.Design/methodology/approachOrdinary least squares (OLS) regression is used to test the research hypotheses on a sample of S&P 500 firms between 2004 and 2016.FindingsThe results show that female CEOs are significantly positively associated with the readability of 10-K reports – in line with ethical-sensitivity theory. Further results show that this association is variable depending on the demographic attributes of female CEOs – in line with upper echelon theory. Specifically, older female CEOs and those with financial expertise are significantly associated with more readable 10-K reports. In contrast, female CEOs hired from within the firm are negatively associated with the readability of 10-K.Research limitations/implicationsThis study provides evidence on the effect of female CEOs and their demographic attributes on annual report readability, which was not addressed in prior research.Practical implicationsThe findings show that the appointment of female CEOs seems like a helpful avenue to reduce concerns among the regulators about the textual complexity of annual reports. However, the most important policy implication of the study is that the decision to appoint female CEOs should be based more on their demographic attributes than on gender equality recommendations and full trust in women's behavioral consequences.Originality/valueThis study contributes to the academic literature on readability and gender. Prior research has not clarified which attributes and skills of female CEOs drive their abilities to improve shareholder value and make more ethical decisions. This study suggests that female CEOs are not better “per se” to improve corporate governance practices, and the impacts of female CEOs are not the same and differ according to their demographic attributes.

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Financial statement comparability and accounting fraud

Cited by 9 publications

References 65 publications

The impact of business strategy and annual report readability on financial reporting quality

The impact of business strategy and annual report readability on financial reporting quality

Financial reporting complexities: Association with accounting expertise of board and audit committee

CEO gender and readability of annual reports: do female CEOs’ demographic attributes matter?

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