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Article
Publication date: 12 November 2019

Sami Bacha and Aymen Ajina

This study aims to examine the relationship between the corporate social responsibility (CSR) performance and the readability of annual report. The shareholder theory…

Abstract

Purpose

This study aims to examine the relationship between the corporate social responsibility (CSR) performance and the readability of annual report. The shareholder theory suggests that CSR firms will provide more transparent disclosures because this reflects a socially and environmentally responsible behavior and a firm’s commitment to high ethical standards. In the same time, the agency theory offers an opposite view. It predicts that opportunistic managers use CSR as an entrenchment strategy and hide their maneuvers through complex textual financial disclosures.

Design/methodology/approach

Based on a sample of 100 listed firms on the French CACAll-shares index over the period from 2013 to 2016, the authors use a panel regression analysis and run other estimation methods (IV-2SLS) and simultaneous equation model to address the endogeneity issues. They assess the readability of annual reports using the Gunning-Fog Index and the Flesch Index derived from the computational linguistics literature.

Findings

The results show a significant positive relationship between CSR performance and the readability of annual report. Firms engaging in CSR practices are more likely to provide transparent disclosures with higher readability because this reflects a socially responsible behavior and a firm’s commitment to high ethical standards. This result supports the stakeholder theory and the corporate reputational view. The finding is also robust to alternative readability measurements and to endogeneity bias.

Practical implications

This study helps all market participants to more comprehensively evaluate the CSR performance disclosed on annual report. It encourages managers to consider CSR as a means to prevent the opacity risk through improved information quality. It also drives French authorities to better regulate the narrative disclosure of CSR firms and change the way companies design their reporting practices. Moreover, it encourages CSR rating agencies to become the dominant definition of CSR evaluation by granting more importance to the quality of disclosed information.

Originality/value

This study extends previous research on the potential impact of CSR on information quality measured by annual report readability in the French context. Unlike prior studies on the impact of CSR on information quality, that focus exclusively on earnings management and adopt qualitative approaches to assess the SCR score, the authors use simultaneously the GunningFog Index and the Flesch Index to assess the information quality and extract the CSR score from the CSRHub database of companies’ social, environmental and governance performance.

Details

Corporate Governance: The International Journal of Business in Society, vol. 20 no. 2
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 16 July 2020

Hongkang Xu, Trung H. Pham and Mai Dao

The purpose of this study is to examine the influence of the readability of annual reports on firms’ ability to obtain trade credit from suppliers. Particularly, the…

Abstract

Purpose

The purpose of this study is to examine the influence of the readability of annual reports on firms’ ability to obtain trade credit from suppliers. Particularly, the authors conjecture that annual report readability helps firms obtain more trade credit from suppliers.

Design/methodology/approach

The authors use the Gunning Fog Index as the primary measure of annual report readability and the ratio of accounts payable to the book value of total assets as the measure of trade credit.

Findings

Results from the study of 4,754 firms during the 2004–2016 period indicate that suppliers extend more trade credit to firms with more readable financial reports. The authors’ results are robust to alternative measures of trade credit and annual report readability. The authors’ results remain robust when we control for firm fixed effects and potential endogeneity problems using the instrumental variable approach. A further test shows that the level of trade credit is higher for firms in business service industries, and that this relation is weakened when firms disclose less readable 10-K filings.

Originality/value

The authors’ findings provide new insight into the role of financial report readability in firms’ ability to obtain trade financing from suppliers. The authors’ results are also in line with the SEC’s encouragement that firms use plain English and easy language in financial reporting.

Details

Review of Accounting and Finance, vol. 19 no. 3
Type: Research Article
ISSN: 1475-7702

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Book part
Publication date: 18 January 2021

Gonca Güngör Göksu and Serdar Dumlupinar

In this study, various acts including regulations of public financial management, fiscal responsibility, and state budget in the selected six countries were subjected to…

Abstract

In this study, various acts including regulations of public financial management, fiscal responsibility, and state budget in the selected six countries were subjected to different readability tests, and an international comparison was made. The fiscal responsibility act of six countries – Turkey, the UK, India, Australia, Canada, and Pakistan – were included in the study and analyzed. Each country was analyzed under its official language. Since English is an official language of all of the countries except for Turkey, the authors have evaluated the fiscal responsibility acts of these countries using the following readability tests: Flesch Reading Ease, Flesch-Kincaid, Gunning-Fog, and Dale-Chall. Additionally, Public Financial Management and Control Law No. 5018 approved in Turkey was analyzed by the Ateşman Readability Test which was uniquely designed for Turkish grammar rules. The acts discussed in the study were analyzed not only as a whole but also in parts and subsections. According to the results of the study, the levels of readability of the existing laws in most of the selected countries are very difficult to understand for a university graduate. However, when the readability level of the British Budget Responsibility and National Audit Act tested as parts and subsections and a whole, it was rated at a level a university student could understand. This study analyses the readability and intelligibility of acts related to fiscal responsibility and the state budget in six selected countries, adopting Anglo-Saxon public administration model and making an inter-country evaluation. Since it is important that citizens have enough information about legislation for a citizen-oriented understanding, a legislation system that is understood by the larger part of the society is essential.

Details

Contemporary Issues in Public Sector Accounting and Auditing
Type: Book
ISBN: 978-1-83909-508-5

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Article
Publication date: 7 September 2020

Desi Adhariani and Elda du Toit

This study aimed at investigating the readability of sustainability reports in Indonesia. The Indonesian government, through the Financial Services Authority of Indonesia…

Abstract

Purpose

This study aimed at investigating the readability of sustainability reports in Indonesia. The Indonesian government, through the Financial Services Authority of Indonesia (Otoritas Jasa Keuangan [OJK]), has issued regulation POJK 51/2017 concerning the implementation of sustainable finance, which requires public companies to prepare sustainability reports—either stand-alone reports or parts of annual reports. Until 2017, only 30% of the top public companies in terms of market capitalisation issued the required report. Companies' decisions to provide the report stem from the greater visibility and access to resources that flow from additional narratives. However, the usefulness of such a report can be questioned.

Design/methodology/approach

We used several linguistic techniques (Flesch Reading Ease [FRE], Flesch–Kincaid, and Gunning Fog measures) to evaluate the readability of sustainability reports. The analysis was performed using a software application called “Readability Studio 2015.”

Findings

We found the reports to have a low level of readability. This means that the information provided in the disclosures are very difficult to decipher and understand by the targeted users. Considering the similar levels of report readability in companies across industries, we observe a pattern of isomorphism in the way companies have implemented the same format and language construct in disclosing their sustainability information. They might apply the myth that complex language attracts investors or impresses others.

Research limitations/implications

The techniques to measure readability that we use might not capture the whole dimensions of readability and understandability, especially in the non-English language.

Practical implications

The results from this study can be used as evaluation tools for companies and regulators in preparing more intelligible and readable sustainability reports, as mandated by POJK 51/2017.

Social implications

Sustainability reports act as a medium of accountability for a company's sustainable production and operations. Their usefulness for investors and other users often depends on the readability of the information.

Originality/value

The readability of sustainability reports in the context of Indonesia as an emerging market has not been comprehensively investigated in previous research. This study is among the first of its kind to support the quality enhancement of the reports.

Details

Journal of Accounting in Emerging Economies, vol. 10 no. 4
Type: Research Article
ISSN: 2042-1168

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Article
Publication date: 3 April 2019

Neetu Yadav and Vineet Sehgal

The purpose of this paper is to analyze the content of mission statements of India’s Super 50 companies, selected from Forbes India magazine, on multiple aspects such as…

Abstract

Purpose

The purpose of this paper is to analyze the content of mission statements of India’s Super 50 companies, selected from Forbes India magazine, on multiple aspects such as components, stakeholders’ inclusion, content readability and strategic orientation.

Design/methodology/approach

A total sample of 29 companies was chosen for the study, whose mission statement details were available on their official websites. These firms’ mission statement was rated on the basis of nine selected components of what constitutes a “good mission statement.” Further, industry-level analysis was also carried out to measure significant differences between manufacturing and service industries. Data were analyzed using frequency analysis, average and t-statistics. Gunning Fog index was also calculated to measure content readability.

Findings

The results show that Indian firms largely focus on their customers as major stakeholders while defining their mission and emphasize upon values and philosophy, products or services offered, and integration of technology in production or processes. There is no statistically significant difference identified between the average mean value of components for sample manufacturing and service firms.

Research limitations/implications

The study is cross-sectional in nature; however, a few firms redesign their mission according to need; therefore, a detailed longitudinal study of a few firms could open up new paradigms. The findings are based on sample firms selected from Forbes India, so generalization needs to be done with complete caution.

Originality/value

The study looks ahead of the most popular of David’s (1989) nine crucial components of mission statements, taking into account major shifts in the business environment. It also attempts to fill a contextual research gap by analyzing the mission statements of top Indian firms. Three crucial elements – “strategic decision,” “stakeholder concerns” and “critical success factors” – have been identified for Indian firms that define their mission statement.

Details

Journal of Strategy and Management, vol. 12 no. 2
Type: Research Article
ISSN: 1755-425X

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Article
Publication date: 9 December 2019

Brett S. Kawada and Jeff Jundong Wang

This study aims to examine a firm’s disclosure properties subsequent to receiving a going-concern opinion.

Abstract

Purpose

This study aims to examine a firm’s disclosure properties subsequent to receiving a going-concern opinion.

Design/methodology/approach

A difference-in-difference research design was used to control for endogeneity issues. Annual report readability is used as a proxy for firm disclosure.

Findings

The results indicate a negative and significant association between issuance of a going-concern report to a firm and the firm’s readability index in the subsequent year. In other words, after receiving a going-concern opinion, a firm’s annual report exhibits increased readability. The results, when broken into subsamples of surviving and failing firms, are concentrated in the surviving firms.

Research limitations/implications

Prior research has shown that firms change their disclosure properties due to endogenous choices motivated by incentive or exogenous shocks. The results of this study, however, suggest that firms that receive going-concern opinions are incentivized to be more forthcoming in disclosing their financial information.

Originality/value

To the authors’ knowledge, this study is the first to investigate how firms’ general disclosures change subsequent to receiving a going-concern opinion.

Details

Managerial Auditing Journal, vol. 35 no. 1
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 4 September 2007

Tim Hatcher and Sharon Colton

The purpose of this article is to highlight the results of the online Delphi research project; in particular the procedures used to establish an online and innovative…

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Abstract

Purpose

The purpose of this article is to highlight the results of the online Delphi research project; in particular the procedures used to establish an online and innovative process of content validation and obtaining “rich” and descriptive information using the internet and current e‐learning technologies. The online Delphi was proven to be an excellent tool in establishing content validity for an HRD‐related construct, e.g. adult learning principles. A review of related literature revealed no existing research that used a web‐based Delphi technique to validate measurements used in training and development (T&D) or HRD.

Design/methodology/approach

Research methods included: a thorough review of the literature to construct an item pool of adult learning principles and instructional methods, and a Delphi expert panel consensus. The mean, mode, standard deviation, interquartile range, and skewness of the data were calculated from the voting procedures for determination of consensus. Evidence of reliability was indicated by the interrater reliability coefficient from a field test. In addition, the Gunning FOG Index for readability was calculated to improve the readability of the instrument.

Findings

To address the first research question the authors suggest that a valid instrument can be developed by a diverse Delphi expert panel that measures the application of adult learning principles to fully‐mediated world wide web‐based training. The second research question was answered by illustrating that the internet can assist a group of diverse and geographically dispersed subject‐matter experts in establishing a content valid measurement of instructional methods and techniques that demonstrate the application of adult learning principles to fully‐mediated web‐based training. And, finally, the paper concludes that a Delphi process can be established as a web‐based method to validate research measures.

Practical implications

This research helps to address the critical issue of how research is used in practice. Reasons why this research lends itself more to practice than other HRD research using more common qualitative or quantitative methods include: it is a relatively simple procedure requiring less than expert‐level skills; the Delphi uses expert opinion that is commonly used in training and development practice; and results are easy to interpret and practical.

Originality/value

This research is unique in its approach to developing a content valid instrument using state‐of‐the‐art technology coupled with a updated Delphi method. It is valuable to HRD and other professionals and researchers interested in developing valid measures across cultures and where experts are geographically dispersed.

Details

Journal of European Industrial Training, vol. 31 no. 7
Type: Research Article
ISSN: 0309-0590

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Article
Publication date: 17 January 2020

Christopher Demaline

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…

Abstract

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.

Details

Journal of Financial Reporting and Accounting, vol. 18 no. 1
Type: Research Article
ISSN: 1985-2517

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Article
Publication date: 2 October 2017

Elda du Toit

This is an exploratory study to investigate the readability of integrated reports. The aim of this paper is to assess whether integrated reports are accessible to their…

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1611

Abstract

Purpose

This is an exploratory study to investigate the readability of integrated reports. The aim of this paper is to assess whether integrated reports are accessible to their readership and add value to stakeholders.

Design/methodology/approach

Readability analyses are performed on the integrated reports of all companies listed on the Johannesburg Stock Exchange for 2015 and 2016. Readability results are compared by means of a correlation analysis to the results of the Ernst & Young Excellence in Integrated Reporting Awards for 2015.

Findings

The results show that the complex nature of the language used in integrated reports of listed companies impairs readability and, as an implication, affects the value stakeholders can derive from the information. The results from the correlation with the Ernst & Young Excellence in Integrated Reporting Awards indicate that an integrated report is considered of higher quality if it is written using complex language.

Research limitations/implications

The main limitation of the study lies in its exclusively South African setting, which is the only country where integrated reports are recommended as part of stock exchange listings requirements. Another limitation is the fact that integrated reports are mainly aimed at informed users and is thus compiled with the informed reader in mind, which impacts on general readability.

Practical implications

The results present new findings regarding integrated reporting practice, which is of interest to firms, investors, regulators, amongst others. The findings show how the value-added by integrated reports could be improved.

Originality/value

This study is the first to investigate the readability of integrated reports in a South African context. The results indicate that integrated reports are difficult to read and are only useful to a portion of the total intended population.

Details

Meditari Accountancy Research, vol. 25 no. 4
Type: Research Article
ISSN: 2049-372X

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Article
Publication date: 1 March 2004

Don T. Johnson

A mutual fund must provide prospectuses to each potential investor before the fund may accept monies from that individual. The prospectuses are a major source of…

Abstract

A mutual fund must provide prospectuses to each potential investor before the fund may accept monies from that individual. The prospectuses are a major source of information about the fund and yet they have historically been largely unreadable by the public. While the poor readability has been a problem in the past, it is becoming a greater problem as the number of individuals responsible for their own investment decision making increases. Recognising this problem, the Securities and Exchange Commission (SEC) adopted Rule 421 in 1998, requiring that prospectuses be made more readable as measured by a subjective reading of the document. This study applies four objective tests to mutual fund prospectuses from both preand post‐Rule 421 periods and finds substantial evidence that mutual fund companies have complied with Rule 421 and are producing prospectuses that are much more readable and accessible by the general public.

Details

Journal of Financial Regulation and Compliance, vol. 12 no. 1
Type: Research Article
ISSN: 1358-1988

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