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Prior studies have demonstrated that simple linear discriminant models can be highly successful in identifying financially distressed companies, and therefore useful in predicting corporate failures. Such models have been shown to be both industry and country specific even though their variable selection has been narrow. These models have remained incredibly robust over time despite variations in the definition of the ‘distressed’ state employed for modelling purposes. This paper extends such analysis to the main and second boards of the Kuala Lumpur Stock Exchange (KLSE) in Malaysia, with particular reference to their designation of PN4 companies (those classified as ‘distressed’ in accordance with Practice Note No. 4 introduced in February 2001). The findings of the study show that a single discriminant model has high classificatory power for both boards of the KLSE, and that the optimum model comprises financial ratio variables common to other published models. Previous findings are therefore shown to be substantially generalisable to a new environment and to a different definition of distress.

The obfuscation hypothesis suggests that under‐performing firms will tend to obscure the meaning of their corporate narratives by deliberately adopting a textual complexity, most readily apparent through poor readability and the use of unnecessarily difficult language. This paper seeks to add to the literature in the area by comparing the textual complexity of corporate narratives, notably the chairman's statement, of main board and second board companies on the Bursa Malaysia (formerly known as the Kuala Lumpur Stock Exchange), with their financial performance, and also to examine the impact of company size, board membership and degree of statutory regulation on the readability of corporate narratives.

Following the existing literature this paper uses readability as a proxy for textual complexity, in addition to more direct measures, and seeks to examine relationships between textual complexity and various measures of financial performance.

The findings suggest that there are significant relationships between corporate language and financial performance, but that these are not consistent with the obfuscation hypothesis.

The findings are consistent with the suggestion that increased regulation and statutory monitoring of disclosures are associated with improved readability of narrative. They do not provide support for the obfuscation hypothesis.