Determinants of readability of financial statements in Kenya

James  N Ndegwa

doi:10.54960/jfcg.v6i1.78

المؤلفون

James N Ndegwa Department of Accounting and Finance School of Business and Economics, Cooperative University of Kenya

DOI:

https://doi.org/10.54960/jfcg.v6i1.78

الكلمات المفتاحية:

Readability، Financial Statements، Firm Characteristics

الملخص

The current study set out to investigate the determinants of readability of financial statements of Kenyan-listed firms. A deductive approach was employed and data was collected from a sample of 59 companies listed in the NSE in a census study over 5 years between years 2014 to 2018. Prais Winsten regression model was employed and the findings indicated that file size had a significant and negative effect on the readability of financial statements in Kenyan listed firms. The implication is that large-size financial statements are more difficult to read than smaller ones. This finding is consistent with reality since it will take less time to read small-sized financial statements than larger ones. Preparers of financial statements who are the firm managers should thus be careful about this finding. Regulatory authorities should develop policies that encourage the production of smaller volume financial statements to enhance their readability by the end-users. The current study is the first in East Africa since there has been no study on the readability of financial statements that have employed readability indices and that has regressed determinants against the readability of financial statements in this region.

التنزيلات

بيانات التنزيل غير متوفرة بعد.

المراجع

Álvaro, M. I., Francisco J. R., & Carmen, R. O. (2021. Readabilty in management reports: extension and good governance practices. Spanish Accounting Review, 24(1), 19-30. https://doi.org/10.6018/rcsar.363171

Badawy, H., & Ibrahim, A. (2018). Effect of readability and complexity on naïve investors decisions: an experimental study in an emerging economy. International Journal of Accounting research, 6(2), 2-9. https://doi.org/10.35248/2472-114X.18.6.186

Bloomfield, R. J., (2002). The incomplete revelation hypothesis and financial reporting. Accounting Horizons, 16(3). https://doi.org/10.2139/ssrn.312671

Boritz, J., E., Hayes, L., & Timishenko, L. M. (2016). Determinants of the readability of SOX 404 reports, Journal of Emerging Technologies in Accounting, 13(2), 145-168. https://doi.org/10.2308/jeta-51593

Checon, B.Q., Telles, S. V., & Mucci, D. M. (2018). Determinant factors of the accounting reports readability levels from BRICS countries’, Paper presented at the XVIII Accounting Moving Forward Conference. 25-27 July 2018. Sao Paulo, Brazil.

Cheung, E. W., & Lau, J. (2016). Readability of notes to financial statements and adoption of IFRS. Australian Accounting Review, 26(2), 162-176, https://doi.org/10.1111/auar.12087

Connelly, B. L., Certo, S. T., Ireland, R. D., & Reutzel, C.R. (2011). Signaling Theory: A Review and Assessment. Journal of Management, 37(1), 39-67. https://doi.org/10.1177%2F0149206310388419

Efretuei, E. D. (2013). Narrative Disclosures in Corporate Annual Reports: A Syntactical Complexity Perspective. Unpublished PhD thesis, University of Leeds, Leeds, UK.

Ginesti, G., & Drago, C. (2018). Female board participation and annual report readability in firms with boardroom connections. An International Journal, 33 (4), 296-314. https://doi.org/10.1108/GM-07-2017-0079

Hair, J. F., Anderson R. E., Babin B. J., & Black, W. C. (2019). Multivariate Statistics and Econometrics, (8th ed.). Pearsons Education, Essex, UK.

Hassan, M. K., Abbas, B. A., & Garas, N. S. (2019). Readability, Governance and Performance: A Test of the Obfuscation Hypothesis in Qatari Listed Firms. Journal of Corporate Governance, 19(2), 270-298.

Ifantt, H., & Dyah, S. (2019). Effect of IFRS adoption on readability of annual reports: an empirical study of Indonesian public companies. Journal of Akuntansi dan Keuangan, 12(2), 49-57. DOI:10.9744/jak.21.2.49-57

Kumar, G. (2014). Determinants of Readability of Financial Reports of U.S.-Listed Asian Companies. Asian Journal of Finance & Accounting, 6(2), 1-18

Loughran, T., & Mcdonald, B. (2014). Measuring readability in financial disclosures. Journal of Finance, 69(4), 1643–1671. https://doi.org/10.1111/jofi.12162

Loughran, T and Mcdonald, B. (2016). A textual analysis in finance. University of Notre Dame

Luo, J. H., & Chen, X. L. (2018). Annual report readability and corporate agency costs. China Journal of Accounting Research, 11(3), 187-212. https://doi.org/10.1016/J.CJAR.2018.04.001

Mohammadi, S., & Naghsbandi, N. (2019). Audit committee attributes and the readability of financial statements footnotes. Iranian Journal of Accounting and Finance, DOI: 10.22067/ijaaf.v3i2.88794

Muneeb, A., & Zhou, M. (2019). Readability of Annual Reports and the Agency Problem of Corporation in the Context of Pakistan. International Journal of Tax Economics and Management, DOI:10.35935/tax/25.2713

Nandi, S., & Ghosh, S. K. (2012). Corporate governance attributes, firm characteristics and the level of corporate disclosure: Evidence from the Indian listed firms. Decision Science Letters, 2(2), 45-58. https://doi.org/10.5267/J.DSL.2012.10.004

Ocansey, E. O. (2017). Forensic Accounting and the Combating of Economic and Financial Crimes in Ghana. European Scientific Journal, 13(31), 379-393. https://doi.org/10.19044/ESJ.2017.V13N31P379

Reyna, V. F., & Bainerd, C. J. (2007). The importance of mathematics in health and human judgment: numeracy, risk and communication and medical decision making. Leaning and Individual Differences, 17(2), 147-159. https://doi.org/10.1016/J.LINDIF.2007.03.010

Richard, G., Fisher, R., & Staden, C. (2015). Readability and Thematic Manipulation in Corporate Communications: A Multi-Disclosure Investigation. Paper Presented at the AFAANZ Conference. 5-7 July 2015. Hobart, Australia.

Saadaby, S. M., & Mohamed, E. T. (2015). Reading and understanding financial reports in Sudan: Extent and difficulties. Gezira journal of economic and social sciences, 1(6)

Satwinder, S., Naeem, T., Tamer, K. D., & Georgios, B. (2017). Corporate Governance and Tobin’s Q as a Measure of Organizational Performance. British Journal of Management, 00, 1–20. https://doi.org/10.1111/1467-8551.12237

Siano, F., & Wysocki, P. (2018). The Primacy of Numbers in Financial and Accounting Disclosures: Implications for Textual Analysis Research. Market Efficiency eJournal. https://doi.org/10.2139/ssrn.3223757.

Spence, M. (1973). Job Market Signaling. Quarterly Journal of Economics, 87, 355-374. https://doi.org/10.2307/1882010

Stigliz, J..E. (2000). The contributions of economics of information to twentieth century economics. Quarterly journal of Economics, 115, 1441 – 1478, https://doi.org/10.1162/003355300555015

Tan, H. T., Wang, E., Zhou, B. (2014). When the use of positive language backfires: the joint effect of tone, readability, and investor sophistication on earnings judgments. Journal of Accounting Research, 52, 273–302. https://doi.org/10.1111/1475-679X.12039

Telles, S. V. (2018). Determinants of differences in readability between Financial Instruments notes in Portuguese and in English. XVIII USP International Conference in Accounting, Sao Paulo, Brazil

Thomas, G., Kincaid, J. P., & Hartley, R. D. (2016). Test-Retest and Inter-Analyst Reliability of the Automated Readability Index, Flesch Reading Ease Score, and the Fog Count. Journal of Literacy Research, 7(2), 149–154. https://doi.org/10.1080/10862967509547131

Thurner, S., Hanel, R., Liu, B., & Murtra, B., C. (2015). Understanding Zpif’s Law of word frequencies through sample space collapse in sentence formation, Journal of the Royal society interphase, 12, 1-7. http://dx.doi.org:/10.1098/fsif.2015.0330

Xu, Q., Fernando, G. D., & Tam, K. (2018). Executive Age and Readability of Financial Reports. Advances in Accounting, 1-12. https://doi.org/10.1016/j.adiac.2018.09.004.

Wising, G. J., Blignaut, A. S., & Berg, K. V. (2016). Using readability, comprehensibility and lexical coverage to evaluate the suitability of an introductory accountancy textbook to its readership, Stellenbosch papers in linguistics, 46, 155-179. https://doi.org/10.5774/46-0-205

Yamane, T. (1967). Statistics, An Introductory Analysis, (2nd ed.). Harper and Row, New York.

Zurel, S. (2014). Readability of annual reports: A comparison of American and French annual reports, Unpublished Masters thesis, Gent University, Belgium.