Relationship Between Annual Report Readability and Corporate Financial Performance

Abstract

Annual financial reports, which all public corporations are legally required to publish, are the convential means of communication between managers of a firm (who act as agents) and the stockholders (owners) of the firm (who are the principals). These financial reports are also of great interest to other stakeholders in the firm, namely the employees of the firm, its suppliers, customers, bondholders, the investment community, and society at large. Through annual financial reports, management can disseminate information that reduces uncertainty about the firm in the minds of the stockholders: It reassures the employees and bondholders of the firm and suppliers to the firm that their economic stake in the company is secure. It allows the investment community to make forecasts about the future returns to investors from the firm's securities.

Impression Management Motivations, Strategies and Disclosure Credibility of Corporate Narratives

“…Adelberg, 1979;Subramanian et al, 1993;Courtis, 1998Courtis, , 2004Li, 2006) where as others failed to find such relation (e.g. Courtis, 1986Courtis, , 1995Baker & Kare, 1992;Clatworthy & Jones, 2001;Rutherford, 2003).…”

The readability of integrated reports

“…Readability formulae provide a quantitative way to predict how readable a target audience find a text to be (Courtis, 1986; Eugene Baker and Kare, 1992; Jones and Shoemaker, 1994; Klare, 1974). Readability has been used in communication, psychology and education to indicate how easy it is to understand a piece of writing.…”

“…Thus, despite criticism, readability measures are still widely used and recommended for readability studies due to it being an objective test, its ease of use, its understandability and because it can be used to compare readability of different texts (Clatworthy and Jones, 2001; Courtis, 1998; Eugene Baker and Kare, 1992; Klare, 1974). Courtis and Hassan (2002) also found it to be cost-effective and, as stated by Subramanian et al (1993), it does not need human participation, therefore issues such as selection validity threats are eliminated.…”

“…Most interested and affected parties only have access to publicly available information of a company, and the integrated report is supposed to fill the information gap left by annual reports (De Villiers and Van Staden, 2010a, 2010b), as it provides more information directly related to the strategy of the organisation (Lambooy et al , 2014; Phillips et al , 2011). One of the key characteristics of a good report is its ability to convey the necessary information to its wide audience in a way that is easy to read and understand and is appropriate for decision-making (Buitendag et al , 2017; Chatterjee, 2008; Cook and Sutton, 1995; Eugene Baker and Kare, 1992; Jones, 1988; Pashalian and Crissy, 1952; Rahman, 2014; Richards and van Staden, 2015). Unfortunately, many studies have found that financial reports are lacking in readability (Anderson, 1998; Bartlett and Chandler, 1997; Hrasky and Smith, 2008; Schroeder and Gibson, 1992), in part as a result of increasing complexity (Eccles and Saltzman, 2011).…”

The Role of Text Analytics and Information Retrieval in the Accounting Domain

“…Early studies were primarily based on manual coding. Clatworthy and Jones ͑2001͒ review prior readability studies on annual reports ͑Pashalian and Crissy 1952; Soper and Dolphin 1964;Smith and Smith 1971;Still 1972;Dolphin and Wagley 1977;Healy 1977; Barnett and Leoffler 1979;Holley and Early 1980;Courtis 1986;Jones 1988;Schroeder and Gibson 1990;Taffler 1992a, 1992b;Baker and Kare 1992;Courtis 1995a;1995b and find them to have small sample sizes that range between 18 and 120 documents. Costly manual coding of hard copies apparently precludes large samples.…”