Annual report readability variability: tests of the obfuscation hypothesis

Department of Accountancy, City University of Hong Kong, Kowloon, Hong Kong

Introduction Communication between corporate management and various interested constituencies occurs continuously and in many forms. A traditional statutory-based formal communication vehicle is the corporate annual report. Although a less timely medium than other forms, the annual report comprises a comprehensive data base of past corporate achievements, and thereby facilitates the confirmation, revision and formation of readers' expectations about a company in which they have an interest. The annual report will be more or less useful depending on the extent to which, inter alia, its content is readable and understandable. One contemporary annual reporting trend is for management to employ more narrative disclosures as part of the overall communication package. Effective communication of narratives will be improved if those responsible for writing prose passages are responsive to the reading and comprehension abilities of their audiences. Studies investigating the readability of narratives within annual reports have been published in the accounting literature since 1952 (Pashalian and Crissy, 1952). There have been at least 25 annual report-based studies over the past 40 years, spanning the USA, Canada, Australasia, the UK and Hong Kong (reviews of prior studies can be found in Courtis, 1995a, b; Jones and Shoemaker, 1994). Sophisticated psycholinguistic and sociolinguistic techniques such as Cloze, multidimensional scaling, association analysis, and classification analysis have been used together with more basic formula approaches. With regard to the latter, the methodology has used one or more English-based word and syllable count readability formulas to measure the degree of reading difficulty of selected prose passages. The Flesch Reading Ease formula has been the dominant choice of researchers, essentially because of its computational ease, general understandability, and comparability with other similar studies. Nearly every study has focused on the readability of two or three sections of corporate annual reports. Almost without exception, these studies
The author thanks Joshua Ronen and to two anonymous reviewers for their helpful comments. Invaluable data-gathering assistance was received from Jenny Chan, Kwok Chi Chan and Hoi Kin Lui. Data can be obtained from the author.

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Received March 1997, Revised June 1997, September 1997 Accepted November 1997

John K. Courtis

Accounting Auditing & Accountability Journal, Vol. 11 No. 4, 1998, pp. 459-471. # MCB University Press, 0951-3574

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corroborate and confirm the overall finding over time and across countries that annual reports are being written at a reading-ease level which is classified as difficult to very difficult (and possibly beyond the fluent comprehension of the vast majority of readers)[1]. The Flesch formula is but one quantitative method of predicting whether a target audience is likely to be able to read a prose passage. Its ambition is to quickly and succinctly indicate the same kind of information about comprehension ease that a writer would have to judge through experience and feedback from readers, or measure through a comprehension test on the specified passages (Courtis, 1986, p. 285). How well a formula is able to do this depends on its ability to measure elements in the writing that are related to reader understanding. Elements can come from content, style, format and organization. Only style factors have been found to be conveniently measurable within readability formula. At least 82 elements of style have been examined, and approximately 67 versions of readability formula have been developed (Klare, 1964, pp. 75-80; and 1974-75, pp. 7487). These have spawned many formula recalculations and revisions, as well as computer-based versions. Klare (1974-5) argues that relatively good predictions about readability can be obtained by using a two-variable general purpose formula, especially if a word or semantic variable is used together with a sentence or syntactic variable. It is believed that word length is related to speed of recognition, and that sentence length is related to memory span or words recalled. Although the complexity of the sentence is probably the real causal factor in difficulty, sentence length correlates very highly with complexity, and pragmatically it is easier to count. These two variables do not necessarily cause difficulty, but they have been found to be good indices of difficulty. There is some concern about whether Flesch and other formula approaches genuinely capture the readability difficulty of narrative disclosures (Adelberg, 1979; Jones and Shoemaker, 1994; Stevens et al., 1992). Readability formulas are simplistic in that they enable a passage of selected text to be represented by a single summary score, which at best is merely a general estimate of difficulty. The formulas concentrate on only those aspects of sentence construction which can be conveniently measurable, such as the attributes of word and sentence construction, i.e., number of syllables in a passage, number of polysyllabic words, number of words with seven or more letters, and sentence length. Other important matters such as syntax, style, format, graphic design, logic, conceptual density, human interest, organization and reinforcement are not considered. Moreover, formulas pay no heed to the way new concepts are introduced, nor to the motivational nature of the materials. These limitations of readability formulas have been discussed in detail elsewhere (Dreyer, 1984; Irwin and Davis, 1980; Jones and Shoemaker, 1994; McConnell, 1982). The limitations are mitigated to some extent in that the technique has been used in validation studies to predict the relationship

between formula scores and estimates of readability arrived at from some independent comprehension testing (see Klare, 1964, pp. 154-6). By-andlarge, however, these validation studies are now seen to be quite dated. Until an accounting researcher successfully correlates a readability formula score with a conventional reading comprehension test, there is a risk that these measures could be misleading. As long as we keep these caveats in mind, a formula approach (especially a computer-applied formula such as Flesch's Reading Ease measurement) can continue to serve as a cost-effective expedient technique in which to obtain some information about the likely ability of written disclosures to help or hinder the fluent comprehension of readers. At best, we can use the technique to provide general tendencies about the trend and variability of readability levels, without attaching seeming precision to the formula scores and their implications per se[2]. Each of the prior annual report readability studies has examined one or more of three sections: Chairman's Address, Auditors' Report and Footnotes to the financial statements. These sections contain prose passages of sufficient length to enable the computation of formula-based readability scores. The usual approach has been to select a passage of at least 100-words, count syllables and average sentence length, insert these values into the formula and compute a reading ease score. This procedure can be followed for one or more passages, with the arithmetic mean of the scores often being used to represent the readability level of the entire annual report of that particular company. The mean is used as the basic observation for analyzing relationships between readability levels and corporate attributes such as size, profitability, risk and industrial classification. A key question which has not been addressed in these studies is whether the mean score is a reliable indicator of readability. Expressed another way, does prose within the annual report vary with regard to reading ease? Prior studies have assumed implicitly that the calculated reading ease score is representative of an entire section, such as the Chairman's Address, or in some cases of the entire report. The underlying focus of this paper is to determine whether readability scores vary according to the passage chosen, and, if so, the magnitude of this variability. Information asymmetry between management and readers of annual reports provides the framework for presenting an obfuscation hypothesis. Adelberg (1979, p. 187) noted that, ``...the placing of managers in complete control of the accounting communication process which monitors their performance breeds a situation wherein it is perfectly natural to expect that some managers would obfuscate (emphasis added) their failures and underscore their successes''. This notion suggests that the presence of variability is associated with management's tendency to manipulate or arrange prose to enhance ``good news'' with easier to read writing, and mask ``bad news'' with more difficult writing. Jones (1996, p. 90) concludes ``that readability

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may be one of the many characteristics which management may manipulate. ...one of a number of studies which suggest that management is not neutral in its presentation of accounting narratives''. Reading ease manipulation is more likely to take place if management has engaged in ``earnings management'' because of a desire to avoid scrutiny. Obfuscation then becomes a potential tool to mask this behaviour by reducing a reader's desire to investigate more closely. The major motivation of this study is to investigate the extent to which readability scores are variable between prose passages within the Chairman's Address. This section of the annual report was selected because several prose passages of sufficient length for formula measurement can be obtained, and because it has been the focus of at least 15 prior studies (refer to Courtis, 1995a, b; Jones and Shoemaker, 1994). The Chairman's Address, or its equivalent, the President's Letter, is the most read section in the annual report (Courtis, 1982; Jones, 1988; Parker, 1982; Subramanian et al., 1993). Accordingly, one might expect management to give special attention to this section, thereby making it a fertile narrative in which to investigate obfuscation. A statistical measure of variability is used to determine the presence and magnitude of readability variability within the Chairman's Address, and in that way then identify the extent of variability between companies. The study also investigates the presence of reading ease patterns within the Chairman's Address. Variability and readability are used to investigate associations structured within obfuscation hypotheses, including the reporting of ``good news/bad news''. It was hypothesized that the management of a company which reports a large annual profit percentage reduction will seek to communicate with greater obfuscation, i.e., they will have lower readability scores and higher variability in their Chairman's Address. A previously unstudied variable is examined the frequency a corporation is cited in a daily leading business newspaper. Frequency of press appearance may also be a surrogate for corporate size. It was hypothesized that companies in the ``public eye'' via frequent newspaper reports will seek to reduce the chances of interference from investors, government and regulatory agencies. They will do this in a number of ways, one of which is by seeking to confuse their readership by obfuscating. In other words, a priori, one would expect to find higher levels of variability and lower readability scores to be associated with higher levels of press citation. Sample selection The focus of the study is to investigate the presence of Reading Ease variability within the Chairman's Address section of annual reports. This investigation could be undertaken in any country where corporate annual reports include narrative disclosures in the English language. Readability formulas used in annual report studies have been derived and validated on

prose written in English. The present exploratory study was conducted on the annual reports of public companies listed on the Stock Exchange of Hong Kong[3]. The final sample of 120 public companies for 1994/5 was distilled from two databases, developed specifically for the study[4]. The population of public companies listed on the Hong Kong Stock Exchange in 1994/5 was 510. Ten companies were deleted from consideration because they were either newly incorporated or were liquidated during the year and annual reports were not available. For the 12-month period 1994, the Business Post section of the South China Morning Post (the leading daily English newspaper issued in Hong Kong with a major subscriber base) was searched to determine the frequency of press coverage devoted to each of the 500 companies. Readers who use newspaper-based information in formulating investment decisions, would perceive the Business Post section to be an important source. The newspaper search resulted in a ranked array of 500 companies from highest to lowest frequency of press coverage. The 30 companies from each end of this array were selected as eligible for the sample. The second database consisted of the rate of annual change of corporate profitability. The percentage change in profit from ordinary consolidated activities (before exceptional items, extraordinary items and profits tax) between 1994/5 and 1993/4 was calculated for each company. These percentages were used to prepare a ranked array of the 500 companies from highest to lowest rate of profit change. The 30 companies from each end of this array were selected as eligible for the sample. The final sample of 120 companies compiled from the high-low extremes of the two ranked arrays consisted of companies with attributes of high or low (i) press coverage frequency, or (ii) percentage change in annual profitability. The annual reports of these 120 companies were used as the source documents for the present readability variability study[5]. Readability measurement The formula approach requires the selection of 100-word prose passages for measurement. Three passages were taken from each of the beginning, middle and end of the Chairman's Address of each of the 120 annual reports[6]. The Flesch reading ease formula was used to score each of the three passages[7]. The arithmetic average of the three scores is used later in the paper to represent a company's annual report readability level, and to determine whether any statistical association is present with the two corporate attributes examined later in the paper. Variability of readability was measured statistically using the coefficient of variation. The mean of the three Flesch scores and the standard deviation were used to calculate a measure of dispersion of each company and thereby facilitate direct comparability across the sample. The main advantage of the coefficient of variation is that it avoids the

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potentially distorting perception caused by individual mean magnitudes. For example, take two simple series of numbers: A 10, 15, 5, and B 80, 60, 70. The respective means and standard deviations for A are 10 and 4.08, and for B 70 and 8.16. The standard deviation implies that series B has higher variability (8.16 compared with 4.08), but this is misleading because of the size effects of the two series. When standardized by their coefficient of variations the variability is represented as 40.8 per cent for A and 11.65 percent for B, which indicates the exact opposite to the standard deviation measure. Hence, the coefficient of variation de-emphasizes size effects of the series of numbers and concentrates on a standardized measure of variability, which is then directly comparable between companies. A possible limitation of using the coefficient of variation is that it relies on Flesch-constructed scores which are not truly a ratio scale. The seven reading ease ratings of the Flesch index are not proportionally equal. Hence, it is not possible to say, for example, that a score of 30 is twice as bad as a score of 60. Accordingly, there is an implicit assumption that the mean of the three scores meaningfully designates a company's actual reading ease behaviour on the reading ease ratings scale. Another concern is that the index does not have an absolute zero point (extreme cases of difficult readability can result in negative scores). Analysis of variability The first part of this section concentrates on the frequency and magnitude of variability of reading ease scores. From a statistical point of view, the larger the coefficient of variation, the greater the variability of the three calculated reading ease scores. The further the coefficient departs from zero, the less reliable is the mean readability score as a representative proxy of a company's readability. A profile of the coefficients of variation (V) of the 120 sampled companies is shown in Table I. The smallest V is 4.83 per cent, the largest 89.64 per cent, and the overall mean coefficient of variation is 25.87 per cent. A total of 106 companies (86 per cent) have V scores in excess of 10 per cent. The fact that such a large proportion of companies are shown to
V scores Number of companies 1 0 3 1 10 26 27 38 14 120 Percentage of companies 0 2 1 8 22 23 32 12 100

Over 80 to 90 Over 70 to 80 Over 60 to 70 Over 50 to 60 Over 40 to 50 Over 30 to 40 Over 20 to 30 Over 10 to 20 Table I. 10 and below Distribution of coefficient of variation Totals

display variability between 10-90 per cent is indicative of a pervasive variability phenomenon in the writing of prose passages within the Chairman's Address. This pervasiveness of variability raises the question of whether any specific pattern of reading difficulty is present within the Chairman's Address. For example, is there evidence to suggest that the location of a passage has any bearing on the degree of reading difficulty? This question is not trivial, because the obfuscation concept, as noted earlier, hypothesizes that management would have a propensity to employ writing level as a tool to enhance ``good news'' and/or mask ``bad news''. Annual report preparers are aware that the Chairman's Address is read more frequently than any other section. One example of how obfuscation could occur is the prediction that management would use the middle passages of this address to ``bury'' adverse or negative news through a writing style that is more difficult to read than the introduction and conclusion passages of the narrative[8]. Flesch scores which would be consistent with this example would portray the following matches: highest score first passage, (indicating it to be the easiest passage to read); lowest score middle passage (indicating it to be the most difficult to read); score between the highest and lowest third passage. To determine whether this pattern or sequencing of reading ease is present, each of the three Flesch scores for the Chairman's Address for each of the 120 companies was identified by sequence, namely, A for the highest (easiest) Flesch score, B for the second highest, and C for the lowest (hardest) score. Six sequences corresponding to the location of the passages are possible: ABC, ACB, BAC, BCA, CAB and CBA. If no phenomenon is present, each sequence should have the same expected frequency of occurring, i.e., 20 times. The actual distribution of sequences is shown in Table II. Chi-square tests on the distribution of Chairman's Address A-C sequences were significant at an alpha of 0.01. The chi-square for the Chairman's Address of 39.4 exceeds the critical value of 15.1 at five degrees of freedom. These results indicate that the distribution of sequences differs from a uniform distribution, and that some systematic patterning of reading difficulty is present.
Sequence ABC ACB BAC BCA CAB CBA Totals Actual frequency chairman's address 29 41 15 16 8 11 120 Percentage chairman's address 24 34 13 13 7 9 100 Expected frequency (16.67 per cent) 20 20 20 20 20 20 120

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Table II. Distribution of sequences

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Passages selected from the Chairman's Address indicate that 70 or 58 per cent of sequences commence with A (the easiest to read). Sequence ACB is of most interest with regard to the above example of obfuscation. There are 41 companies or 34 per cent of the sample showing this pattern, which is approximately twice the expected per cent of 16.67 if nothing unusual is taking place. The possibility of a ``location'' effect was tested by examining cross sectional variability across the entire sample. The mean variability of the middle passage (V = 33.7) is higher than the mean variability of either the first (V = 26.6) or the ending passage (V = 30.9). Results such as these suggest that a disproportionate number of companies might be ``word crafting'' their Chairman's Address to effect obfuscation. If C is synonymous with the likely presence of obfuscation, then this claim might also be reasonable if obfuscation occurred in the final passage, i.e., sequences ending in C. The distribution of sequences with C passage locations from Table II is 19 (sequences commencing with C, namely, CAB and CBA), 57 (sequences with C in the middle, namely, ACB and BCA) and 44 (sequences with C at the end, namely, ABC and BAC) against an expected frequency of 40 if nothing unusual is taking place. The chi square of 18.3 indicates this distribution is significant at an alpha of 0.001 with two degrees of freedom. The distribution of sequences was examined for each of the 30 companies in each of the four categories: highest rate of change in profitability (i.e., ``good news'' companies), lowest rate of change in profitability (all were making losses, i.e., ``bad news'' companies), highest incidence of financial press coverage, and lowest incidence of financial press coverage. In each category the ACB sequence was highest, but chi square tests on their overall distributions indicated there was no statistical difference between the four sequence distributions. Tests of obfuscation The prevalence of variability raises the obfuscation hypothesis, which, stated simply, is that management is not neutral in its presentation of accounting narratives. This section uses association testing to determine whether there is any relationship between mean readability and variability levels and the release of ``good news/bad news'' and the extent of financial press exposure. Prior studies have examined the relationship between readability and the identity of the external auditor (Barnett and Leoffler, 1979), risk (Courtis, 1986), listing status, sales and complexity (Jones, 1988), failure (Smith and Taffler, 1992 a,b), industrial classification and size (Courtis, 1995 a,b) and profitability (Baker and Kare, 1992; Subramanian et al., 1993). The present study examines a variable not previously reported in the readability literature, namely, the frequency of a firm's financial press coverage. A priori, the expectation is that wider ranges of variability (i.e., higher V's) and lower reading ease scores will be associated with the release of

corporate ``bad news''. Management will seek to divert the attention of readers from the full impact of negative news by incorporating variable degrees of reading together with more difficult to read passages. This proposition can be tested empirically. The relationship between mean readability and variability levels and corporate profitability is examined for the 30 companies with the highest percentage profitability increase in 1994/5 and the 30 companies with the lowest. The group of 30 ``good news'' companies has a mean readability score of 46.22 and a mean coefficient of variation of 27.37 per cent, while the group of ``bad news'' companies has a mean readability score of 46.23 and a mean coefficient variation of 23.76 per cent. The group readability means are virtually identical, while the variability means are not in the hypothesized direction. The t-test scores of 0.0045 and 0.9154 are not significant. There does not seem to be any evidence in this sample that management are obfuscating ``bad news'' by arranging the writing of narrative disclosures with higher levels of reading ease variability or choice of more difficult writing as per the Flesch measure (see Courtis, 1986; Jones, 1988; and compare with Subramanian et al., 1993; Jones, 1994). The frequency of a company's financial press exposure during a one year window was selected as a new variable because of the importance of press reports to investors as a timely and useful source of information (Parker, 1982). The obfuscation hypothesis predicts, a priori, that those corporations which are frequently drawn to the attention of the public in the press will have a tendency to confound their readership by communicating less clearly and thereby seek to lessen the likelihood of external sources of interference. The operational hypothesis is that there is a positive and statistically significant relationship between the occurrence of high press coverage and (a) higher levels of variability, and (b) lower Flesch reading ease scores. The variability and readability scores of the 30 companies experiencing the highest press coverage (with frequency of occurrence in 1994 between 94-673 times) were compared against the variability and readability scores of the 30 companies with the lowest press coverage (with frequency of occurrence between 0-5 times) on the basis of mean scores. A comparison of variability and readability scores revealed overall group averages which are all consistent in direction to that hypothesized. The mean variability high-low comparison was 26.63 to 21.32, and the mean readability high-low comparison was 44.56 to 48.51. T-test comparisons revealed a statistically significant difference of 1.6258 for variability and 1.676 for readability, both being significant at an alpha of 0.10 and 58 degrees of freedom. In other words, companies in ``the public eye'' issued annual reports with overall average variability which was higher than for companies which had little or no citation exposure whatsoever. Furthermore, the average readability scores of high press coverage companies were lower, which indicated they were harder to read than companies which had little or no

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press coverage. In both cases, therefore, the obfuscation hypothesis is accepted, namely, that companies ``in the public eye'' appear to engage in the use of writing as a tool to manipulate readers. These overall results suggest that press coverage is implicated in readability levels, and further research into the influence of this variable appears to be warranted[9]. Conclusions The main purpose of the study has been to investigate the presence of variability of readability scores of narrative disclosures within annual reports. A sample of 120 public companies listed on the Hong Kong Stock Exchange in 1994/5 were measured according to the Flesch reading ease formula. Three scores were obtained from passages within the Chairman's Address for each company. These scores were used to calculate the coefficient of variation, being a statistical measure of variability. The study found that all 120 annual reports displayed statistical variability in the readability of the Chairman's Address. The coefficients of variation ranged from 4.83 per cent to 89.64 per cent, with 86 per cent of companies having a V in excess of 10 per cent. The sample mean coefficient was 25.87 per cent. Variability of readability is pervasive. The analysis also investigated whether any discernible reading ease patterns were present within the Chairman's Address section of the annual report. Chi-square tests showed that a pattern was apparent. The easiest passage was the first 100-words of this narrative (58 per cent of companies complying), the most difficult passage being the middle 100-words, and the middle difficulty passage being at the end. Thirty-four per cent of the sample complied with this pattern, compared with an expected proportion of 16.67 per cent. Some unusual sequencing phenomena do appear to be present. Further country studies are recommended to determine whether this is a general phenomenon of contemporary reporting practice or whether it is an artifact of the data set studied. Mean readability scores were used to test the obfuscation hypothesis regarding the readability scores of first the 30 companies with the highest percentage increases in annual profitability and the 30 companies with the largest percentage decreases in annual profitability, and second the 30 companies with the highest frequencies of financial press reporting versus the 30 companies with the lowest frequencies of financial press reporting. No significant association was found between mean readability and variability scores and the reporting of ``good news/bad news'', defined as changes in profitability. However, the overall mean comparisons between high and low press coverage indicated results which were consistent with the obfuscation hypothesis. It is noted that while mean readability and variability scores are satisfactory measures for association testing with obfuscation, the presence of variability must be accounted for more deliberately in future readability research, and how this might be accomplished satisfactorily is a remaining challenge.

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The paper acknowledges the concerns held by those who believe that readability formulas, such as the Flesch reading ease formula, oversimplify research into readability (and understandability) levels, especially of technical accounting communications. Nevertheless, as long as it is kept in mind that formula-based scores are not definitive, then it can be accepted (with caution) that readability formulas provide some information about the predicted ability of passages to be readable by target audiences. Those who are concerned with issues of effective communication will find that the ability to predict likely comprehension of messages is helpful in identifying whether annual report narratives are deserving of more deliberate attention by management and their delegated annual report preparation team. For those who are willing to accept the formula approach as an expedient and cost effective methodology, the present study identifies further research possibilities. The unusual sequencing of reading ease levels throughout the Chairman's Address is an enticing issue. The evidence shown suggests that some companies may engage in word crafting in a manner which is consistent with the ``good news/bad news'' hypothesis. Finally, the challenge remains to identify a defensible reliable representative measure of readability which takes account of variability.
Notes 1. Although the assertion in parentheses has often been claimed by those who relate readability findings to educational attainment levels of the adult population, a direct linkage between readability and understandability has not yet been established (Jones and Shoemaker, 1994, p. 172) 2. A comparison can be made here with financial ratios, which are not without their limitations and concerns, but yet, for a variety of reasons they continue to be used widely. The issue is that financial ratios are indicators which facilitate the interpretation of corporate health, rather than as precise and definite facts in themselves. Similarly, formula-driven readability scores provide indications about the general level of reading ease attached to selected prose, signposting whether the prose is consistent with the predicted ability of the audience to comprehend the intended messages. 3. See Courtis (1995a, p. 8) for comments about the rationale of Hong Kong annual reports as a database. See also the concerns of Jones (1996) about multilingual and multicultural issues. 4. These databases were developed between July and December 1995 by Chan, Chan and Lui (1996) under the close supervision of the author, with regular checks to assess accuracy and completeness. For research purposes they can be made available to others. 5. The 120 companies is not therefore a random sample. To test for obvious bias, a small number of companies not in the sample were examined and found to produce an almost identical range of statistical values of variability. 6. The study examined three separate textual passages and calculated their Flesch variability. The study did not measure the level of readability of the entire chairman's address, and, hence, it was not possible to measure the relationship of the three passages to the overall mean of the sampled Chairman's narratives.

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7. The Flesch formula is: Reading Ease = 206.835 0.846wl 1.015sl, where wl equals the number of syllables per 100 words and sl equals average sentence length. The prediction is that closer a score is to zero, the more incomprehensible is the writing. The study employed the Microsoft Word for Windows Flesch computer package as part of the Grammar options. 8. Alternative obfuscation hypotheses are possible. For example, there is no a priori reason to predict the middle passage is used to ``bury'' adverse news. Management could equally get rid of negative news in the first passage in the hope that it will be forgotten by the reader, or leave it until the last passage in the hope that the reader will not reach that passage. I am indebted to a reviewer for this insight. 9. Press coverage may be a surrogate for other variables like size, and this obviously needs further research. References Adelberg, A.H. (1979), ``Narrative disclosures contained in financial reports: means of communication or manipulation?'', Accounting and Business Research, Vol. 9 No. 35, pp. 179-189. Baker, H.E. and Kare, D.D. (1992), ``Relationship between annual report readability and corporate financial performance'', Management Research, Vol. 15, pp. 1-4. Barnett, A. and Leoffler, K. (1979), ``Readability of accounting and auditing messages'', Journal of Business Communication, Vol. 16, pp. 49-59. Chan, K.C., Chan, Y.Y. and Lui, H.K. (1996), ``Variability of readability within annual reports in Hong Kong'', Unpublished report, City University of Hong Kong, 1996, pp. 159++. Courtis, J.K. (1982), ``Private shareholder response to corporate annual reports'', Accounting and Finance, Vol. 22 No. 2, pp. 53-72. Courtis, J.K. (1986), ``An investigation into annual report readability and corporate riskreturn relationships'', Accounting and Business Research, Vol. 16 No. 64, pp. 19-27. Courtis, J.K. (1995a), ``Readability of annual reports: Western versus Asian evidence'', Accounting, Auditing & Accountability Journal, Vol. 8 No. 2, pp. 4-17. Courtis, J.K. (1995b), ``Readability of financial statements'', The Hong Kong Accountant, Vol. 6 No. 4, pp. 66-74. Dreyer, L.G. (1984), ``Readability and responsibility'', Journal of Reading, January, pp. 334-8. Irwin, J.W. and Davis, C.A. (1980), ``Assessing readability: the checklist approach'', Journal of Reading, November, pp. 124-30. Jones, M.J. (1988), ``A longitudinal study of the readability of the chairman's narratives in the corporate reports of a UK company'', Accounting and Business Research, Vol. 18 No. 72, pp. 297-305. Jones, M.J. (1994), ``A comment to contextualise `performance and readability: a comparison of annual reports of profitable and unprofitable corporations'''. Journal of Business Communication, Vol. 31 No. 3, pp. 225-230. Jones, M.J. (1996), ``Readability of annual reports: Western versus Asian evidence a comment to contextualize'', Accounting, Auditing & Accountability Journal, Vol. 9 No. 2, pp. 86-91. Jones, M.J. and Shoemaker, P.A. (1994), ``Accounting narratives: a review of empirical studies of content and readability'', Journal of Accounting Literature, Vol. 13, pp. 142-185. Klare, G.R. (1964), The Measurement of Readability, Iowa State University Press, Iowa.

Klare, G.R. (1974-75), ``Assessing readability'', Reading Research Quarterly, Vol. X No. 1, pp. 63-102. McConnell, C.R. (1982), ``Readability formulas as applied to college economics textbooks'', Journal of Reading, October, pp. 14-17. Parker, L.D. (1982), ``Corporate annual reporting: a mass communication perspective'', Accounting and Business Research, Vol. 12 No. 48, pp. 279-286. Pashalian, S. and Crissy, W.J.E. (1952), ``Corporate annual reports are difficult, dull reading, human interest low'', Journal of Accountancy, August, pp. 215-219. Smith, M. and Taffler, R. (1992a), ``The chairman's statement and corporate financial performance'', Accounting and Finance, Vol. 32, pp. 75-90. Smith, M. and Taffler, R. (1992b), ``Readability and understandability: different measures of the textual complexity of accounting narrative'', Accounting, Auditing & Accountability Journal, Vol. 5, pp. 84-98. Stevens, K.T., Stevens, K.C. and Stevens, W.P. (1992), ``Measuring the readability of business writing: the Cloze procedure versus readability formulas'', Journal of Business Communication, Vol. 29, pp. 367-382. Subramanian, R., Insley, R.G. and Blackwell, R.D. (1993), ``Performance and readability: a comparison of annual reports of profitable and unprofitable corporations'', Journal of Business Communication, Vol. 30, pp. 49-61.

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