The Textual Complexity of Annual Report Narratives: A Comparison of High- and Low-Performance Companies

Sue Hrasky, University of Tasmania
Clare Mason, University of Tasmania
Debbie Wills, University of Tasmania

Abstract: Regulators world-wide have placed increasing emphasis on narrative disclosures in annual reports as a means of informing shareholders about the position and prospects of their company. However, such disclosures have the potential to be strategically manipulated to influence the level of complexity that confronts the reader. This study focuses on the assessment of textual complexity using readability formulae. The potential and limitations of the formulae are explained and an empirical analysis conducted to assess differences in the textual complexity of the chairperson’s annual report letter in a sample of Australian companies that have performed well and those that have performed badly. The results indicate that the chairpersons’ letters of the poor performers are significantly more textually complex than those of the high-performance group.