A Plain English Measure of Financial Reporting Readability

@article{Bonsall2017APE,
  title={A Plain English Measure of Financial Reporting Readability},
  author={Samuel B. Bonsall and Andrew J. Leone and Brian P. Miller and Kristina Rennekamp},
  journal={Journal of Accounting and Economics},
  year={2017},
  volume={63},
  pages={329-357}
}
We propose a new measure of readability, the Bog Index, which captures the plain English attributes of disclosure (e.g., active voice, fewer hidden verbs, etc.). We validate this measure using a series of controlled experiments and an archival-based regulatory intervention to prospectus filing readability. We also demonstrate the importance of understanding the underlying drivers of quantity-based measures of readability. In particular, we caution researchers that a vast amount of the variation… Expand

Figures and Tables from this paper

Is Readability of Textual Corporate Disclosures Measurable?
This paper reviews the accounting literature that studied readability of corporate narrative disclosures as a dependent variable being affected by firm performance, desire to highlight good news orExpand
Double Dutch Finally Fixed? A Large-scale Investigation into the Readability of Mandatory Financial Product Information
TLDR
It is found that readability improved significantly following the introduction of Key Investor Information Documents (KIIDs), and the use of jargon remains pervasive and report noncompliance with mandatory design requirements. Expand
Textual Analysis in Finance
TLDR
An updated survey of the literature while focusing on a few broad topics—social media, political bias, and detecting fraud, and on the construction and use of lexicons in finance. Expand
Annual Report Readability and the Cost of Equity Capital
Using a large panel of U.S. public firms, we examine the relation between annual report readability and cost of equity capital. We hypothesize that complex textual reporting deters investors’ abilityExpand
Determinants of the Readability of SOX 404 Reports
ABSTRACT: This study examines SOX 404 reports with fiscal year-ends between 2004 and 2014 to determine their readability as measured by the FOG Index. We investigate the association betweenExpand
Annual report readability and the cost of equity capital
Abstract Using a large panel of U.S. public firms, we examine the relation between annual report readability and cost of equity capital. We hypothesize that complex textual reporting detersExpand
Readability of Annual Reports: Evidence from Foreign Firms in the United States Stock Exchange
This study measures the readability of annual reports issued by foreign firms in the United States stock exchange, using the two most popular measurements: Fog Index and length of reports. This studyExpand
Grammatical Violations and Financial Reporting Quality
We examine whether grammatical violations (GVs) in annual financial reports (10-Ks) provide a timely signal of financial reporting quality. To the extent that GVs capture the time, effort, andExpand
Market value of 10-K readability and corporate cash holdings
Abstract We investigate the effect of 10-K readability on the association between stock returns and changes in cash holdings and find that readability significantly increases the marginal value ofExpand
Shareholder Litigation Risk and Readability of Corporate Financial Disclosures: Evidence from Natural Experiments
We use a natural experiment to weigh conflicting theories on the impact of shareholder litigation risk on the readability of corporate financial disclosures. In response to a Ninth Circuit Court ofExpand
...
1
2
3
4
5
...

References

SHOWING 1-10 OF 52 REFERENCES
Measuring Readability in Financial Disclosures
TLDR
It is reported that 10-K document file size provides a simple readability proxy that outperforms the Fog Index, does not require document parsing, facilitates replication, and is correlated with alternative readability constructs. Expand
Analyst Report Readability
Using an extensive database of 356,463 sell-side equity analysts' reports from 2002 to 2009, this study is one of the first to analyze the readability of analysts' reports. We first examine theExpand
When is a Liability not a Liability? Textual Analysis, Dictionaries, and 10-Ks
Previous research uses negative word counts to measure the tone of a text. We show that word lists developed for other disciplines misclassify common words in financial text. In a large sample of 10Expand
Regulation and Financial Disclosure: The Impact of Plain English
In October 1998, the SEC implemented a rule requiring firms to use plain English in their prospectus filings. In addition to the rule, the SEC encouraged the use of plain English in all filings andExpand
The Effect of Annual Report Readability on Analyst Following and the Properties of Their Earnings Forecasts
ABSTRACT: This study examines the effect of the readability of firms’ written communication on the behavior of sell-side financial analysts. Using a measure of the readability of corporate 10-KExpand
Measuring Qualitative Information in Capital Markets Research: Comparison of Alternative Methodologies to Measure Disclosure Tone
ABSTRACT: This study evaluates alternative measures of the tone of financial narrative. We present evidence that word-frequency tone measures based on domain-specific wordlists—compared to generalExpand
Processing Fluency and Investors’ Reactions to Disclosure Readability
The SEC's emphasis on the use of plain English is designed to make disclosures more readable and more informative. Using an experiment, I find that more readable disclosures lead to strongerExpand
Textual Analysis and International Financial Reporting: Large Sample Evidence
We examine annual report text for over 15,000 non-US companies from 42 countries over the period 1998-2011, focusing on the length of disclosure, presence of boilerplate, comparability with US andExpand
The Effects of Reporting Complexity on Small and Large Investor Trading
ABSTRACT: This study examines the effects of financial reporting complexity on investors’ trading behavior. I find that more complex (longer and less readable) filings are associated with lowerExpand
The impact of narrative disclosure readability on bond ratings and the cost of debt
Prior research on the determinants of credit ratings has focused on rating agencies’ use of quantitative accounting information, but the there is scant evidence on the impact of textual attributes.Expand
...
1
2
3
4
5
...