Readability in the earnings releases of Brazilian Publicly-Held Companies
DOI:
https://doi.org/10.51341/cgg.v25i3.2918Keywords:
Readability, Fog Index, Capital Markets, IBrA, DeterminantsAbstract
Objective: Explore the determinants of readability in the earnings releases of publicly traded Brazilian companies.
Method: The study was carried out in the entities belonging to the Brazil Broad-Based Index (IBrA) between 2010 and 2019, with quarterly documents. Financial and accounting data were collected in the Economática database, while company reports (releases) were collected manually on the companies' investor relations websites (IRs) for the entire analysis period. Readability was estimated using the Fog index and the extent of the reports, according to Li (2008). In addition, two econometric models were estimated on panel data with Fixed Effects.
Originality/Relevance: In examining a report (release of results) until then, underexplored and that has its particularities, in addition to a broad and quarterly sample, this work differs from the previous ones.
Results: In general, the research indicated that companies with a high market-to-book ratio, older and known by the market, smaller concerning their market value, with greater shareholding concentration, in addition to low fluctuations in their quarterly earnings, issue reports that are more readable and less complex.
Theoretical/Methodological contributions: The findings here reinforce the importance of readability as a tool for efficient corporate disclosure and depict how the entity can use this element in favor of the company.
Downloads
References
Ajina, A., Laouiti, M., & Msolli, B. (2016). Guiding through the Fog: does annual report readability reveal earnings management? Research in International Business and Finance, 38, 509-516. https://doi.org/10.1016/j.ribaf.2016.07.021 DOI: https://doi.org/10.1016/j.ribaf.2016.07.021
Andrade, J. P. de, & Lucena, W. G. L. (2021). Exceso de confianza de los gerentes y las decisiones estratégicas. Estudios Gerenciales, 37(161), 542-555. https://doi.org/10.18046/j.estger.2021.161.4208 DOI: https://doi.org/10.18046/j.estger.2021.161.4208
Araújo Júnior, J. B. D., Medeiros, O. R. D., Caldas, O. V., & Silva, C. A. T. (2019). Misvaluation e viés comportamental no mercado de ações brasileiro. Revista Contabilidade & Finanças, 30, 107-122. https://doi.org/10.1590/1808-057x201805770 DOI: https://doi.org/10.1590/1808-057x201805770
Bataineh, H., Abuaddous, M., & Alabood, E. (2018). The effect of family ownership and board characteristics on earnings management: evidence from Jordan. Academy of Accounting and Financial Studies Journal, 22(4), 1-17.
Black, E. L., Christensen, T. E., Taylor Joo, T., & Schmardebeck, R. (2017). The relation between earnings management and non‐GAAP reporting. Contemporary Accounting Research, 34(2), 750-782. https://doi.org/10.1111/1911-3846.12284 DOI: https://doi.org/10.1111/1911-3846.12284
Bloomfield, R. J. (2002). The “incomplete revelation hypothesis” and financial reporting. Accounting Horizons, 16(3), 233-243. http://dx.doi.org/10.2139/ssrn.312671 DOI: https://doi.org/10.2308/acch.2002.16.3.233
Bloomfield, R. (2008). Discussion of “annual report readability, current earnings, and earnings persistence”. Journal of Accounting and Economics, 45(2-3), 248-252. https://doi.org/10.1016/j.jacceco.2008.04.002 DOI: https://doi.org/10.1016/j.jacceco.2008.04.002
Bonsall IV, S. B., Leone, A. J., Miller, B. P., & Rennekamp, K. (2017). A plain English measure of financial reporting readability. Journal of Accounting and Economics, 63(2-3), 329-357. https://doi.org/10.1016/j.jacceco.2017.03.002 DOI: https://doi.org/10.1016/j.jacceco.2017.03.002
Borges, G.F, & Rech, I. J. (2019). Determinantes da legibilidade das notas explicativas de companhias brasileiras. Revista de Gestão, Finanças e Contabilidade, 9(3), 31-51. https://doi.org/10.18028/rgfc.v9i2.7028 DOI: https://doi.org/10.18028/rgfc.v9i3.7522
Boubaker, S., Gounopoulos, D., & Rjiba, H. (2019). Annual report readability and stock liquidity. Financial Markets, Institutions & Instruments, 28(2), 159-186. https://doi.org/10.1111/fmii.12110 DOI: https://doi.org/10.1111/fmii.12110
Brandão, I.F., & Crisóstomo, V. L. (2015). Concentração de propriedade e qualidade da governança da empresa brasileira. Brazilian Review of Finance, 13(3), 438-469. https://doi.org/10.12660/rbfin.v13n3.2015.45739 DOI: https://doi.org/10.12660/rbfin.v13n3.2015.45739
Brooks, C. (2002). Introductory econometrics for finance. Cambridge: Cambridge University Press.
Collins, D. W., Li, O. Z., & Xie, H. (2009). What drives the increased informativeness of earnings announcements over time?. Review of Accounting Studies, 14(1), 1-30. https://doi.org/10.1007/s11142-007-9055-y DOI: https://doi.org/10.1007/s11142-007-9055-y
Courtis, J.K., (2004). ‘Corporate report obfuscation: artefact or phenomenon?’. British Account. Rev. 36 (3), 291–312. https://doi.org/10.1016/j.bar.2004.03.005 DOI: https://doi.org/10.1016/j.bar.2004.03.005
Crisóstomo, V. L., & Pinheiro, B. (2015). Estrutura de capital e concentração de propriedade da empresa brasileira (Capital Structure and Ownership Concentration of the Brazilian Firm). Revista de Finanças Aplicadas, 4.
Davis, A. K., Piger, J. M., & Sedor, L. M. (2012). Beyond the numbers: Measuring the information content of earnings press release language. Contemporary Accounting Research, 29(3), 845-868. https://doi.org/10.1111/j.1911-3846.2011.01130.x DOI: https://doi.org/10.1111/j.1911-3846.2011.01130.x
Fiske, S., and S. Taylor. 1991. Social Cognition. 2nd edition. New York, NY: McGraw-Hill.
Franco, G., Hope, O. K., Vyas, D., & Zhou, Y. (2015). Analyst report readability. Contemporary Accounting Research, 32(1), 76-104. https://doi.org/10.1111/1911-3846.12062 DOI: https://doi.org/10.1111/1911-3846.12062
Gomes, M. C., Ferreira, R. R., & Martins, V. A. (2019). O impacto da OCPC 07 sobre o tamanho e a legibilidade das notas explicativas de companhias brasileiras. Revista Universo Contábil, 14(2), 162-184. http://dx.doi.org/10.4270/ruc.2018216 DOI: https://doi.org/10.4270/ruc.2018216
Grossman, S. J., & Stiglitz, J. E. (1980). On the impossibility of informationally efficient markets. The american economic review, 70(3), 393-408. https://www.jstor.org/stable/1805228
Guay, W., Samuels, D., & Taylor, D. (2016). Guiding through the fog: financial statement complexity and voluntary disclosure. Journal of Accounting and Economics, 62(2-3), 234-269. https://doi.org/10.1016/j.jacceco.2016.09.001 DOI: https://doi.org/10.1016/j.jacceco.2016.09.001
Guillamon‐Saorin, E., Isidro, H., & Marques, A. (2017). Impression management and non‐GAAP disclosure in earnings announcements. Journal of Business Finance & Accounting, 44(3-4), 448-479. https://doi.org/10.1111/jbfa.12238 DOI: https://doi.org/10.1111/jbfa.12238
Gunning, R. (1952). The Technique of Clear Writing. McGraw-Hill, 36-37.
Hasan, M. M. (2020). Readability of narrative disclosures in 10-K reports: does managerial ability matter?. European Accounting Review, 29(1), 147-168. https://doi.org/10.1080/09638180.2018.1528169. DOI: https://doi.org/10.1080/09638180.2018.1528169
Holtz, L., & dos Santos, O. M. (2020). Legibilidade das notas explicativas das empresas brasileiras de capital aberto. Enfoque: Reflexão Contábil, 39(1), 57-73. https://doi.org/10.4025/enfoque.v39i1.45275. DOI: https://doi.org/10.4025/enfoque.v39i1.45275
Huang, X., Teoh, S. H., & Zhang, Y. (2014). Tone management. The Accounting Review, 89(3), 1083-1113. https://doi.org/10.2308/accr-50684 DOI: https://doi.org/10.2308/accr-50684
Kim, P., Marchini, P. L., & Siciliano, G. (2019). Information content of earnings announcements around IFRS adoption and a simultaneous change in press release disclosure in Italy. The International Journal of Accounting, 54(02), 1950005. https://doi.org/10.1142/S1094406019500057 DOI: https://doi.org/10.1142/S1094406019500057
Lang, M. H., & Lundholm, R. J. (2000). Voluntary disclosure and equity offerings: reducing information asymmetry or hyping the stock?. Contemporary accounting research, 17(4), 623-662. https://doi.org/10.1506/9N45-F0JX-AXVW-LBWJ DOI: https://doi.org/10.1506/9N45-F0JX-AXVW-LBWJ
Lawrence, A. (2013). Individual investors and financial disclosure. Journal of Accounting and Economics, 56(1), 130-147. https://doi.org/10.1016/j.jacceco.2013.05.001 DOI: https://doi.org/10.1016/j.jacceco.2013.05.001
Lehavy, R., Li, F., & Merkley, K. (2011). The effect of annual report readability on analyst following and the properties of their earnings forecasts. The Accounting Review, 86(3), 1087-1115. https://doi.org/10.2308/accr.00000043 DOI: https://doi.org/10.2308/accr.00000043
Li, F. (2008). Annual report readability, current earnings, and earnings persistence. Journal of Accounting and economics, 45(2-3), 221-247. https://doi.org/10.1016/j.jacceco.2008.02.003 DOI: https://doi.org/10.1016/j.jacceco.2008.02.003
Lo, K., Ramos, F., & Rogo, R. (2017). Earnings management and annual report readability. Journal of Accounting and Economics, 63(1), 1-25. https://doi.org/10.1016/j.jacceco.2016.09.002 DOI: https://doi.org/10.1016/j.jacceco.2016.09.002
Loughran, T., & McDonald, B. (2014). Measuring readability in financial disclosures. The Journal of Finance, 69(4), 1643-1671. https://doi.org/10.1111/jofi.12162 DOI: https://doi.org/10.1111/jofi.12162
Loughran, T., & McDonald, B. (2016). Textual analysis in accounting and finance: a survey. Journal of Accounting Research, 54(4), 1187-1230. https://doi.org/10.1111/1475-679X.12123 DOI: https://doi.org/10.1111/1475-679X.12123
Miranda, I. D. A., Reina, D., & Lemes, S. (2018) Grau de legibilidade dos relatórios financeiros em empresas do novo mercado. Anais do Congresso USP de Controladoria e Contabilidade, São Paulo, SP, Brasil, 18.
Moreno, A., & Casasola, A. (2016). A readability evolution of narratives in annual reports: A longitudinal study of two Spanish companies. Journal of Business and Technical Communication, 30(2), 202-235. https://doi.org/10.1177/1050651915620233 DOI: https://doi.org/10.1177/1050651915620233
Oliveira, L., Rodrigues, L. L., & Craig, R. (2006). Firm‐specific determinants of intangibles reporting: evidence from the portuguese stock market. Journal of human resource costing & accounting. https://doi.org/10.1108/14013380610672657 DOI: https://doi.org/10.1108/14013380610672657
Reina, D., Silva, F. A. S., Lemes, S., & Reina, D. R. M. (2021). Grau de legibilidade do novo relatório do auditor independente. GESTÃO. Org, 19(2), 151-168. https://doi.org/10.51359/1679-1827.2021.240206 DOI: https://doi.org/10.51359/1679-1827.2021.240206
Seifzadeh, M., Salehi, M., Abedini, B., & Ranjbar, M. H. (2020). The relationship between management characteristics and financial statement readability. EuroMed Journal of Business, 16(1), 108-126. https://doi.org/10.1108/EMJB-12-2019-0146 DOI: https://doi.org/10.1108/EMJB-12-2019-0146
Silva, C. A. T., & Fernandes, J. L. T. (2009). Legibilidade dos fatos relevantes no Brasil. Revista de Administração Contemporânea-RAC Electronica, 3(1), 142-159.
Silva, W. A. M., Rocha, L. F., Trindade, J. A., Reina, D., & Tavares, M. (2017). Custo da complexidade informacional e legibilidade dos relatórios de auditoria. In Anais do Congresso Brasileiro de Custos-ABC, Florianópolis, SC, Brasil, 19.
Souza, J. A. S. D., & Borba, J. A. (2021). Readability como medida de complexidade textual: determinantes e evidências em empresas brasileiras. Revista Contabilidade & Finanças, 33, 112-129. DOI: https://doi.org/10.1590/1808-057x202114180
Souza, J. A. S., Rissatti, J. C., Rover, S., & Borba, J. A. (2019). The linguistic complexities of narrative accounting disclosure on financial statements: An analysis based on readability characteristics. Research in International Business and Finance, 48, 59-74. https://doi.org/10.1016/j.ribaf.2018.12.008 DOI: https://doi.org/10.1016/j.ribaf.2018.12.008
Souza, P. V. S. de, & Silva, P. B. da. (2020). Gerenciamento de tons das divulgações voluntárias nos press releases das companhias abertas brasileiras. Contextus – Revista Contemporânea de Economia e Gestão, 18, 39-51. https://doi.org/10.19094/contextus.2020.43366 DOI: https://doi.org/10.19094/contextus.2020.43366
Downloads
Published
How to Cite
Issue
Section
License
The authors hold the copyright to their article and grant the Journal of Accounting, Management and Governance the exclusive rights of first publication (including communication to the public and reproduction), with the work simultaneously licensed under the Creative Commons Attribution Non-Commercial 4.0 International License (CC BY-NC).
This license allows third parties to remodel, adapt, and create from the published work, as long as it is for non-commercial purposes, giving due credit for authorship and initial publication in this journal.
Authors are permitted to enter into additional separate agreements for non-exclusive distribution of the version of the work published in this journal (e.g., publish in an institutional repository, on a personal website, publish a translation, or publish a book chapter), with acknowledgment of authorship and initial publication in this journal, provided there is no commercial use/distribution.
