Authors: Virginia Sotiropoulou, Dimitris Tzelepis

Title: Complexity of financial reports and firm performance: Textual analysis of readability of U.S. annual disclosures

Abstract

This paper attempts to examine the association between readability of firms’ annual reports and performance of U.S. companies from 1994 to 2017. The following hypothesis is tested: whether managers try to hide poor performance by disclosing complex accounting information. In specific, readability of financial reports and its relationship with firm performance is examined. The dictionary method is used for textual analysis in order to measure readability of reports. The results of textual analysis are combined with financial data of U.S. firms. The findings of this study indicate that managers tend to disclose less readable reports to overshadow negative performance.