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Annual report readability, agency costs, firm performance: an investigation of Oman's financial sector
Journal of Accounting in Emerging Economies Pub Date : 2021-02-02 , DOI: 10.1108/jaee-06-2020-0142
Tamanna Dalwai , Gopalakrishnan Chinnasamy , Syeeda Shafiya Mohammadi

Purpose

The readability of annual reports is an important feature that determines the quality of communication between a firm and its stakeholders. Extant literature has demonstrated that readability characteristics of annual reports are crucial in facilitating the investor's ability to process and analyze information, resulting in higher firm performance and lower agency costs. This study examines the relationship between annual report readability, agency costs and the firm performance of listed financial sector companies in Oman.

Design/methodology/approach

Using a sample of 150 firm-year observations of listed financial sector companies on the Muscat Securities Market (MSM) over the period 2014 to 2018, a panel regression analysis is used, along with the system generalized method of moments (GMM) estimation to address endogeneity concerns. The readability of annual reports is proxied by the length of the annual report, the Flesch reading ease and the Flesch–Kincaid index.

Findings

The ordinary least squares (OLS) results suggest that readability proxied by the length of the annual report has no significant relationship with agency cost, return on assets (ROA) or stock returns. The OLS results are confirmed through the system GMM estimation model for agency costs, Tobin's Q and stock returns. Easier-to-read annual reports measured by the Flesch reading ease demonstrate high asset utilization ratio and Tobin's Q. These results emphasize Flesch reading ease measure in explaining the economic significance of agency cost and Tobin's Q. In contrast, difficult-to-read annual reports are observed for firms with high ROA.

Research limitations/implications

The study is limited to the financial sector. Its generalizability could be extended to a similar sector or countries with features similar to Oman. Future studies on readability could be extended to other sectors of Oman, and financial firms with easier-to-read annual reports show a high Tobin's Q, which reflects the confidence of investors in the stock market. These findings may encourage policymakers to regulate the readability features of annual reports and influence the reporting quality of financials and disclosures also including cross-country comparisons.

Practical implications

Financial firms with easier-to-read annual reports show a high Tobin's Q, which reflects the confidence of investors in the stock market. These findings may encourage policymakers to regulate the readability features of annual reports and influence the reporting quality of financials and disclosures.

Originality/value

While the study extends prior literature on readability, agency costs and firm performance, it is also one of the first to examine the financial sector of an emerging country, namely, Oman. The study supports the obfuscation hypothesis through the association of readability measure with agency cost. Unlike prior research that has focused on common computational linguistic literature, this study uses three proxies for readability to assess information quality.



中文翻译:

年度报告的可读性,代理成本,公司绩效:对阿曼金融业的调查

目的

年度报告的可读性是决定公司与其利益相关者之间沟通质量的重要特征。现有文献表明,年度报告的可读性特征对于促进投资者处理和分析信息的能力至关重要,从而提高了公司的业绩并降低了代理成本。这项研究考察了年度报告的可读性,代理成本与阿曼上市金融部门公司的公司绩效之间的关系。

设计/方法/方法

使用2014年至2018年期间在马斯喀特证券市场(MSM)上对金融业上市公司进行的150个公司年度观察的样本,使用面板回归分析以及系统广义矩(GMM)估计法来解决内生性的关注。年度报告的可读性由年度报告的长度,Flesch阅读的难易程度和Flesch-Kincaid指数所代表。

发现

普通最小二乘(OLS)结果表明,以年报长度为准的可读性与代理成本,资产回报率(ROA)或股票回报率没有显着关系。OLS结果通过针对代理成本,Tobin的Q和股票收益的系统GMM估计模型进行确认。用Flesch阅读易度测得的易于阅读的年度报告显示出较高的资产利用率和Tobin的Q。这些结果强调了Flesch阅读易度测度在解释代理成本和Tobin Q的经济意义上的对比。报告显示,资产回报率较高。

研究局限/意义

该研究仅限于金融部门。它的可推广性可以扩展到具有类似阿曼特征的类似部门或国家。未来有关可读性的研究可能会扩展到阿曼的其他领域,而拥有易于阅读的年度报告的金融公司则显示托宾Q值很高,这反映了投资者对股票市场的信心。这些发现可能鼓励决策者规范年度报告的可读性,并影响财务和披露的报告质量,包括跨国比较。

实际影响

具有易于阅读的年度报告的金融公司显示托宾Q高,这反映了投资者对股票市场的信心。这些发现可能会鼓励决策者规范年度报告的可读性,并影响财务和披露的报告质量。

创意/价值

尽管该研究扩展了有关可读性,代理成本和公司绩效的现有文献,但它也是最早研究新兴国家(即阿曼)金融部门的文献之一。该研究通过将可读性度量与代理成本相关联来支持混淆假设。与先前的研究侧重于常见的计算语言文献不同,本研究使用三个代理来提高可读性以评估信息质量。

更新日期:2021-03-21
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