The readability of company responses to SEC comment letters and SEC 10-K filing review outcomes

Cassell, Cory A.; Cunningham, Lauren M.; Lisic, Ling Lei

doi:10.1007/s11142-019-09507-x

Cited by 62 publications

(55 citation statements)

References 30 publications

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“…The most important reasons are as follows: regulatory review can consume a substantial amount of the regulator's resources (Brown et al, 2017) and, due to the resource constraint, the regulatory reviewers can only devote limited time and attention to each corporate report. Therefore, consistent with Cassell et al (2017), regulatory reviewers are likely to look for heuristic cues (i.e. cognitive processing shortcuts) to determine whether the report is reliable.…”

Section: Hypothesis Developmentmentioning

confidence: 99%

“…That is because regulatory reviewers look for heuristic cues to determine whether the corporate reporting is reliable. Processing fluency theory from the psychological literature suggests that information recipients use readability as a heuristic cue when they assess the reliability of information (Rennekamp, 2012;Cunningham et al, 2017;Cassell et al, 2017). However, there is limited empirical evidence on whether corporate reporting readability affects regulatory review risk.…”

Section: Introductionmentioning

confidence: 99%

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Corporate reporting readability and regulatory review risk

Hesarzadeh

Bazrafshan

2018

BJM

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Purpose The regulatory review process imposes significant costs on companies. Therefore, managers try to find ways to avoid the regulatory review risk. The purpose of this paper is to investigate whether corporate reporting readability reduces the regulatory review risk. Design/methodology/approach This study measures the corporate reporting readability using the Fog Index. It measures the regulatory review risk using the probability of receiving a comment letter from the Securities and Exchange Organization of Iran. Findings The findings reveal that corporate reporting readability reduces the regulatory review risk, after controlling for the factors that affect the regulatory review risk. Originality/value The current paper identifies an easy strategy for managers to mitigate one of the important risks faced by companies. Thus, the results will be of interest to managers, audit committees, and stakeholders involved in the regulatory review process.

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Section: Hypothesis Developmentmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Corporate reporting readability and regulatory review risk

Hesarzadeh

Bazrafshan

2018

BJM

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“…Loughran and McDonald (2014) provided evidence that suggested 10-K file size was a superior financial reporting readability measure than the FOG; however, Bonsall et al (2017) found sufficient evidence to suggest that Loughran and McDonald’s (2014) proxy was a less reliable readability tool than the FOG. Many different readability scales are available; however, the FOG has been used as a readability instrument in numerous extant financial disclosure studies [Ajina et al (2016), Cassell et al (2017), Chakrabarty et al (2018), Li (2008), Lim et al (2018), Lo et al (2017) and Merkley (2014)].…”

Section: Literature Review and Hypothesismentioning

confidence: 99%

Disclosure readability of firms investigated for books-and-records infractions

Demaline

2020

JFRA

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Purpose The paper examines the difference in the disclosure readability of SEC investigated firms and the population of firms traded in the USA. This study aims to further refine the obfuscation hypothesis and broader impression management theory. Design/methodology/approach The paper used quantitative cross-sectional analysis of archival data gathered from the SEC Accounting and Auditing Enforcement Release Archive and the SEC EDGAR database. A one-sample t-test was used to compare mean readability levels. Findings The paper provides empirical evidence to support the assertion that disclosures of the firms being investigated for “books-and-records” infractions are more difficult to read than the disclosure of the average publicly-traded firm in the USA. Research limitations/implications First, the study did not make direct matched-pairs comparisons of the readability level. Second, the unique nature of the sample means that the results may not be generalizable. Further research is necessary to expand on this current work. Practical implications The paper includes implications for consideration by accounting standards setters, financial regulators and annual report readers. Originality/value This paper addresses an identified need to study the existence and degree of complexity and obfuscation in financial disclosures.

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“…However, comment letters are related to considerable costs, as they are an instrument of insider trading (Dechow et al (2016), likely to increase audit fees (Gietzmann and Pettinicchio (2013) and to contribute to changes in institutional holdings (Gietzmann and Isidro (2013). Related to content analysis, Cassell et al (2017) suggest that more easily-readable corporate responses to comment letters result in fewer follow-up SEC comments and restatements.…”

Section: Sec Filing Review Processmentioning

confidence: 99%

“…To control for other firm characteristics that could trigger the issuance of SEC staff comments, I include company's age (AGE), bankruptcy risk (B_RANK), losses (LOSS), sales growth (GROWTH), number of operating segments (SEGMENT), mergers and acquisitions (M&A), external financing (EXTFINANCING), restructuring charges (RESTRUCT) and a proxy for highly litigious industries (LITIGATION). I further supplement Cassell et al (2017) model with several additional firm characteristics which could impact corporate performance (Bens et al 2016): the absolute value of discretionary accruals (ABSDA), return on assets ratio (ROA), leverage (LEV) and book to market ratio (BTM).…”

Section: Empirical Modelsmentioning

confidence: 99%

Regulatory language tone and regulatory discrimination

Koulikidou¹

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Στην παρούσα διατριβή μελετώ τον αντίκτυπο της εποπτικής γλώσσας στις αμερικάνικες κεφαλαιαγορές, την επιρροή της εποπτικής μεροληψίας στην τονικότητας της Αμερικάνικης Επιτροπής Κεφαλαιαγοράς και την πιθανότητα αποδοχής επιστολών σχολιασμού. Για να απαντήσω στα ερευνητικά μου ερωτήματα, χρησιμοποιώ δείγμα γλωσσολογικών κειμένων και αντιστοίχιση του πληθυσμού δύο ομάδων. Η διατριβή αποτελείται από πέντε κεφάλαια, την εισαγωγή, το εμπειρικό σκέλος (κεφάλαια 2 έως 4) και τα συμπεράσματα (κεφάλαιο 5). Τα ευρήματα του πρώτου εμπειρικού κεφαλαίου δείχνουν ότι η τονικότητα των επιστολών σχολιασμού έχουν αντίκτυπο στις τιμές των μετοχών (κατά τη διάρκεια δημοσίευσής τους), οι οποίες σχετίζονται περαιτέρω με τα θεσμικά χαρακτηριστικά των χωρών προέλευσης των εταιριών. Τα ευρήματα του δεύτερου εμπειρικού κεφαλαίου δείχνουν ότι η τονικότητα των επιστολών σχολιασμού είναι πιο αρνητική στις ξένες εταιρείες εισηγμένες στην Αμερική σε σύγκριση με τις ενδογενείς αμερικάνικες εταιρίες. Στο τρίτο και τελευταίο εμπειρικό κεφάλαιο παρουσιάζω την επίδραση της εποπτικής μεροληψίας κατά τη διάρκεια των επιστολών σχολιασμού. Συγκεκριμένα διαπιστώνω την θετική σχέση της πιθανότητας αποδοχής επιστολής σχολιασμού και της «ξενικότητας» της εταιρίας.

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The readability of company responses to SEC comment letters and SEC 10-K filing review outcomes

Cited by 62 publications

References 30 publications

Corporate reporting readability and regulatory review risk

Corporate reporting readability and regulatory review risk

Disclosure readability of firms investigated for books-and-records infractions

Regulatory language tone and regulatory discrimination

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