Do board secretaries influence annual report readability?

Abstract

Purpose The purpose of this study is to investigate the impact of board secretaries’ characteristics on annual report readability using an original method that evaluates the readability of Chinese characters. Design/methodology/approach The authors manually collect board secretaries’ characteristics from the China Securities Market and Accounting Research database and obtain annual reports from the China Information website. Ordinary least square regression is applied to evaluate the impact, and then robustness tests and additional regression analyses are conducted. Findings Board secretaries’ legal-professional expertise, international expertise and role duality improve annual report readability. However, their political connections are negatively associated with it. The effect of expertise (role duality) is more pronounced for firms with lower ex ante litigation risk (board secretaries with equity holdings). Furthermore, higher readability increases the compensation of board secretaries, whereas lower readability increases their turnover. Finally, annual report readability is positively related to firm performance. Research limitations/implications The authors only investigate listed firms in China from 2007 to 2017 because of the difficulties of obtaining data and text mining. Practical implications The authors provide managerial insights for regulators aiming to establish an effective governance mechanism with Chinese characteristics. First, certain requirements for board secretaries’ expertise can improve annual report readability. Further, firms can consider appointing board members or senior executives as board secretaries to enhance disclosure quality. Originality/value To the best of the authors’ knowledge, this study is the first to verify the effect of board secretaries’ characteristics on disclosure quality, especially annual report readability. Moreover, this study proposes a novel measure of annual report readability for Chinese texts.

Sustainability reporting, board diversity, earnings management and financial statements readability: evidence from an emerging economy

“…The findings indicated that the age of directors had significantly eased the readability of financial reports. The findings by Xu et al (2018) agreed with the findings of Sun et al (2022) in China but disagreed with the findings of Efretuei (2013) in the UK who found that older directors were associated with more difficult-to-read financial statements.…”

“…The descriptive statistics findings in Table 2 indicate that the average Flesch readability ease score in Kenyan listed firms was 15.77% which implies that the financial statements of Kenyan listed companies are very difficult to read which was comparable to the Ginesti and Drago (2018) in Italy which found that financial statements are hard to read using the Fog measure of 15.1%. As per the descriptive statistics findings in Table 2, female directors constituted 31.1% of board members which was higher than the female directorship proportion in Italy which stood at 7% (Ginesti and Drago, 2018) and 23.2% in China (Sun et al, 2022). The average age of directors in Kenyan listed firms is 59 years as per Table 2 which is comparable with other countries such as the USA which is 53 years (Xu et al, 2018) and 54 years in the UK (Efretuei, 2013).…”

“…However, the findings by Ginesti and Drago (2018) and Harjoto et al (2020) conflicted with the findings of Efretuei (2013) in the UK who studied 622 annual reports from 2000 to 2011 and employed the FOG readability index and found that there was no significant relationship between female directorships and the readability of financial reports. The findings of Ginesti andDrago (2018), Harjoto et al (2020) and Efretuei (2013) disagreed with those of Sun et al (2022) who employed the FOG readability index in China in a sample that comprised 3152 firms over a period of during 2007 to 2017 and found that female directorships significantly make financial statements less readable. Xu et al (2018) opined that older directors tend to be more honest and truthful and are unlikely to engage in acts to mislead users of financial statements through obfuscation strategies.…”

“…The findings indicated that board independence lacked a significant effect on annual report readability. On the contrary, Sun et al (2022) found that independent directorships made it difficult to read financial statements in China.…”

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

“…Although strategic emphases through these three channels are central to the level of readability in an annual report, there remains a possibility that managerial ability is another critical factor affecting this relationship. Sun et al’s (2022b) finding that board secretaries’ legal-professional expertise, international expertise and role duality improve annual report readability supports this idea. Firms with SE on VA over VC lead to better current profitability, and more experienced managers will state their superior performance with clear and transparent words that reveal the superior performance without exhausting explanations, highlight significant financial success by facilitating an information-rich environment and attribute success to “managers’ foresight” Conversely, firms with SE on VC over VA suffer from poor earnings in the short-term period, and more skilled managers will hide their poor performance with vague words that confuse both stakeholders and competitors, buy time to recover from the initial R&D spending and shield them from blame regarding market failures.…”