CEO power and annual report reading difficulty

Sun, Li; Johnson, Grace; Bradley, Wray

doi:10.1016/j.jcae.2022.100315

Cited by 17 publications

(16 citation statements)

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“…According to upper echelon theory, managers' characteristics influence their strategic choices, which in turn influence the managers' behavior and firm's consequences (Hambrick & Mason, 1984). Previous research has found that specific managerial characteristics (such as gender, age, tenure, power, ability and professional experience) influence how managers behave and the firm's economic outcomes (Bergstresser & Philippon, 2006; Expósito et al, 2021; García Sánchez et al, 2020; Huang et al, 2012; Khan et al, 2021; Lassoued & Khanchel, 2022; Sun et al, 2022). Considering the key role that the CEO plays in the sustainability disclosure, the CEO's characteristics may have impacts on the quality of the corporate sustainability report texts.…”

Section: Introductionmentioning

confidence: 99%

“…Previous studies showed that the CEO plays a key role in the process of preparing quality financial information (Audretsch et al, 2022; Gu, 2022; Ham et al, 2017; Huang et al, 2012; Lewis et al, 2014; Li et al, 2018). Researchers have analyzed several CEOs' demographic and personality attributes (such as gender, age, tenure, power, ability and professional experience; Bergstresser & Philippon, 2006; Expósito et al, 2021; García Sánchez et al, 2020; Huang et al, 2012; Khan et al, 2021; Lassoued & Khanchel, 2022; Sun et al, 2022). From the perspective of corporate non‐financial information disclosure, this paper finds that the personal characteristics of CEOs are not only related to corporate financial disclosure, but also to the quality of sustainable disclosure.…”

Section: Introductionmentioning

confidence: 99%

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What affects the quality of sustainability report texts? Evidence from China

Zhang

2022

Corp Soc Responsibility Env

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We relied on web crawlers and text analysis techniques to develop a new method for measuring the quality of sustainability report texts, and accordingly discussed the impact of chief executive officers' (CEOs') characteristics on the quality of sustainability report texts. We found that companies led by younger CEOs and CEOs with better-educated, financial and overseas backgrounds provided higher quality sustain-

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

What affects the quality of sustainability report texts? Evidence from China

Zhang

2022

Corp Soc Responsibility Env

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“…We also extend prior literature (e.g. Hasan, 2020;Sun et al, 2022;Xu et al, 2018) that focuses on managerial characteristics and 10-Ks readability. While prior studies (Ginesti et al, 2018;Nadeem, 2022) have investigated the influence of board gender diversity on the readability of 10-K reports, we explore the role of female participation in top executive leadership.…”

Section: Introductionmentioning

confidence: 73%

“…Prior literature points to the chief executive officer (CEO) as one of the most influential managers and main decision-makers who play an important role in corporate disclosure quality (e.g. Sun et al, 2022;Xu et al, 2018). CEOs can set the tone at the top in promoting financial reporting integrity and are required to certify the completeness and accuracy of financial statements in the post-SOX era (Rezaee and Kedia, 2012).…”

Section: Introductionmentioning

confidence: 99%

CEO gender and readability of annual reports: do female CEOs’ demographic attributes matter?

Vahdati

Oradi

Nazari

2022

JAAR

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PurposeThis study examines the association between chief executive officer (CEO) gender and the readability of annual reports by considering some demographic attributes of female CEOs.Design/methodology/approachOrdinary least squares (OLS) regression is used to test the research hypotheses on a sample of S&P 500 firms between 2004 and 2016.FindingsThe results show that female CEOs are significantly positively associated with the readability of 10-K reports – in line with ethical-sensitivity theory. Further results show that this association is variable depending on the demographic attributes of female CEOs – in line with upper echelon theory. Specifically, older female CEOs and those with financial expertise are significantly associated with more readable 10-K reports. In contrast, female CEOs hired from within the firm are negatively associated with the readability of 10-K.Research limitations/implicationsThis study provides evidence on the effect of female CEOs and their demographic attributes on annual report readability, which was not addressed in prior research.Practical implicationsThe findings show that the appointment of female CEOs seems like a helpful avenue to reduce concerns among the regulators about the textual complexity of annual reports. However, the most important policy implication of the study is that the decision to appoint female CEOs should be based more on their demographic attributes than on gender equality recommendations and full trust in women's behavioral consequences.Originality/valueThis study contributes to the academic literature on readability and gender. Prior research has not clarified which attributes and skills of female CEOs drive their abilities to improve shareholder value and make more ethical decisions. This study suggests that female CEOs are not better “per se” to improve corporate governance practices, and the impacts of female CEOs are not the same and differ according to their demographic attributes.

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“…For example, Chairman’s narratives become vague and obscure under poor performance, whereas they are clear and more readable in times of good performance (Smith and Taffler, 1992). Powerful CEOs provide annual reports that are more difficult to read, especially for firms with lower performance (Sun et al , 2022a). Nazari et al (2017) further provide empirical evidence that firms with poor corporate social responsibility performance use less readable narrative disclosure to obscure social and environmental performance.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

The impact of strategic emphasis on the readability of narrative information in annual reports

Noh

Park

2022

PAR

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Purpose This study aims to examine how a firm’s strategic emphasis on value appropriation over value creation is associated with the readability of narrative disclosures in annual reports. Design/methodology/approach This study examines the effect of the strategic emphasis on annual report readability based on a total of 45,273 US firm-year (5,754 unique firms) observations for the period from 1994 to 2018. Strategic emphasis is measured as advertising expenses minus research and development expenses, scaled by sales and Bog index and various measures, such as the FOG, KINCAID and FLESCH index, are used to measure the annual report readability. Findings The authors find that the strategic emphasis on value appropriation over value creation is positively related to firms’ annual report readability. In addition, the positive effect of the strategic emphasis on value appropriation over value creation on annual report readability is more pronounced with high managerial ability. Practical implications With the continual effort of Securities and Exchange Commission regulation and IFRS updates to improve narrative disclosures, it is meaningful to provide evidence showing how managers shape narratives in annual reports by highlighting good news with easy-to-understand words, but also may establish a barrier to understanding by choosing to use long and complex words depending on their strategic emphasis. Originality/value The evidence suggests that a strategic emphasis between value appropriation and value creation and managerial ability is an important factor in shaping the readability of annual reports, which contributes to the management, accounting and finance literature that investigates the relationship between resource deployment (i.e. strategic emphasis) and textual properties of corporate financial disclosures (i.e. readability).

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CEO power and annual report reading difficulty

Cited by 17 publications

References 64 publications

What affects the quality of sustainability report texts? Evidence from China

What affects the quality of sustainability report texts? Evidence from China

CEO gender and readability of annual reports: do female CEOs’ demographic attributes matter?

The impact of strategic emphasis on the readability of narrative information in annual reports

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