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The influence of connotation on readability and obfuscation in Australian chairman addresses

Leopold Bayerlein (School of Business, Economics and Public Policy, University of New England, Armidale, Australia)
Paul Davidson (University of New England, Armidale, Australia)

Managerial Auditing Journal

ISSN: 0268-6902

Article publication date: 1 January 2012

860

Abstract

Purpose

The purpose of this paper is to extend and improve prior readability and obfuscation research by investigating the effect of connotation on readability and obfuscation. Furthermore, the paper aims to develop and apply a novel connotation‐based obfuscation assessment approach.

Design/methodology/approach

In total, 87 chairman reports of firms included in the Standard & Poor's ASX200 index were analyzed. The readability of sections and connotation‐based groups of sentences within these narratives were assessed using the Flesch readability formula. The presence or absence of obfuscation within the analyzed chairman addresses was determined using a novel connotation‐based obfuscation assessment approach.

Findings

The study demonstrates that the mid section within the analyzed chairman addresses was significantly more difficult to read than the first and last sections. However, the notion that these reading difficulty differences were due to the prevalence of positive and negative news within these sections could not be supported. A subsequent analysis of the reading difficulty differences between connotation‐based groups of sentences identified the largely positive group of sentences as an important source of reading difficulty. Finally, the advantages resulting from an application of the connotation‐based obfuscation assessment developed in this paper over the traditional obfuscation assessment techniques used in prior literature are demonstrated.

Originality/value

This paper provides a substantial contribution to the literature by establishing a direct link between the connotation of information provided in financial reporting narratives and the readability and obfuscation exhibited by these narratives. The novel assessment approach developed in this paper can be used to benefit preparers and users of financial reporting information by identifying types of sentences whose preparation and/or analysis should be approached cautiously.

Keywords

Citation

Bayerlein, L. and Davidson, P. (2012), "The influence of connotation on readability and obfuscation in Australian chairman addresses", Managerial Auditing Journal, Vol. 27 No. 2, pp. 175-198. https://doi.org/10.1108/02686901211189853

Publisher

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Emerald Group Publishing Limited

Copyright © 2012, Emerald Group Publishing Limited

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