Annual Reports Readability From Linguistic and Communication Perspectives: Systematic Literature Review

Abstract

This research presents a new theoretical framework through assessing readability research based on the linguistics and communication perspectives to determine the obfuscation probabilities and how to mitigate them. Therefore, this systematic literature review analyzed 219 papers using the SCOPUS and Web of Science databases. Findings show that in every language approach, there is an obfuscation level for annual reports, depending on the weakness of a particular component of the text communication process, starting from the use of a complex writing style and ending with the imposition of specific methods of presentation, while suggesting ways to mitigate the obfuscation.

Examining the Readability of Accounting Narratives Derived From Earnings Management

“…The accounting literature also supports the results of this study, as interpreted by Gutiérrez Ponce et al (2023). For instance, Sandell and Svensson (2016) argued that language failure could reflect management's inability to communicate effectively, leading to disclosures that include less readable justifications and excuses.…”

“…Although language does not influence accounting narratives because it is objective and neutral, linguistic approaches can be used to either strengthen or weaken readability index scores, depending on managers' intentions. In the absence of basic writing guidelines for accounting narratives in non-English languages or of a code of ethics that considers language differences when preparing accounting disclosures, such intentions may motivate managers to adopt EMPs (Gutiérrez Ponce et al, 2023). Table 9 summarizes the results of hypothesis testing, as follows.…”

Does corporate governance influence readability of the report by the chairman of the board of directors? The case of Jordanian listed companies

“…Dalwai et al (2021) finds that readability by annual report length has no significant relationship with agency cost, return on assets (ROA), or stock returns. Such practice is consistent with the pragmatic approach of the theoretical framework proposed by Gutiérrez‐Ponce et al (2023) and the findings of Mankayi et al (2023), which suggest that a BOD's adoption of an opportunistic perspective will generate a complex, less readable president's statement.…”

“…Gutiérrez‐Ponce et al (2023) observed that the literature to date on legibility of accounting reports shows no consensus on a definition of legibility. Language and writing style are, however, determining factors in interpretation of business reports.…”

الدور المُعدل للمنافسة فى سوق المنتج على العلاقة بين القدرة الإدارية وقابلية التقارير المالية للقراءة(باللغة الانجليزية)

“…For example, Lim et al (2018) investigate the impact of business strategy on financial report readability, IFRS adoption (Jang & Rho, 2016;Hidayatullah & Setyaningrum, 2019), ownership structure (Shandiz et al, 2022), earning management (Arora & Chauhan, 2023), and management characteristics (Salehi et al, 2020;Seifzadeh et al, 2021). This paper contributes to this literature by exploring one of the in-depth effects of readability, consistent with the call to open new horizons for reducing the reader's difficulties in reading disclosures and to construct more accurate tests such as competition and managerial ability (Hesarzadeh et al, 2020;Bashirimanesh & Arefmanesh, 2023;Gutiérrez Ponce et al, 2023). It examines if the rivalry in the product market serves as an external mechanism for reinforcing management and whether there is a connection between a firm's managerial skills and the level of competition it confronts.…”