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Narrative Disclosure Complexity and Corporate Governance. The Readability and Tone of Corporate Narratives: Does Board Experience Matter?

Lookup NU author(s): Dr Ekaete Efretuei


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Regulators of accounting information have noted the inaccessibility of accounting narrative information in annual reports, providing regulations and measures that will make this information easy to read by the interested audience (for example the United States Securities and Exchange Commission (SEC) Plain English rule and the United Kingdom Financial Reporting Council (FRC) 2009 discussion paper titled “Louder than words”). However, to date, there is still limited academic evidence on the determinants of the complexity of annual reports, though annual reports remain increasingly complex. This paper specifically investigates what determines the syntactical complexity of narratives in annual reports by assessing if the experience of the board plays a role in annual report complexity. The paper focuses on board experience due to the role of the board in governing corporate communications to investors. The paper assesses the syntactical complexity of annual report narratives using linguistic features of textual communication, which measure the level of reading difficulty and the tone of communication in annual reports, following the FRC’s identification of obscurity and imbalance in communication as the causes of complexity in annual reports. The main findings of the paper indicate that the experience of the board determines the level of syntactical complexity of annual report narratives, consistent with the view that the composition of the board affects the integrity of the financial reporting process.

Publication metadata

Author(s): Efretuei E

Publication type: Conference Proceedings (inc. Abstract)

Publication status: Published

Conference Name: British Accounting and Finance Conference

Year of Conference: 2015

Print publication date: 03/03/2015

Acceptance date: 14/01/2015