Corporate Disclosure Readability and Investor Decision-Making: Experimental Evidence from Financial and ESG Information
DOI:
https://doi.org/10.26905/jrei.v7i1.16830Keywords:
Corporate Disclosure, ESG Disclosure, Experimental Research, Investment Decision-making, ReadabilityAbstract
The readability of corporate disclosure plays a crucial role in shaping investors’ ability to process information and make investment decisions. However, experimental evidence on how the readability of both financial and non-financial disclosures influences investor behavior remains limited, particularly in emerging markets. This study examines the effect of corporate disclosure readability on investor decision-making by focusing on financial and environmental, social, and governance (ESG) information. Using a 2 × 2 between-subjects experimental design, the study manipulates the readability of financial and ESG disclosures presented to participants. The experiment involves 58 accounting students with prior knowledge of investment and portfolio management, acting as surrogate investors. The results indicate that disclosures with higher readability significantly increase investors’ willingness to invest compared with disclosures that are difficult to read. The findings suggest that the clarity of both financial and ESG information enhances information processing and influences investment judgments. This study contributes to the literature on corporate disclosure readability and provides implications for firms and regulators in improving the accessibility of corporate reporting.
Downloads
Download data is not yet available.
References
Adhariani, D., & du Toit, E. (2020). Readability of sustainability reports: Evidence from Indonesia. Journal of Accounting in Emerging Economies, 10(4), 621–636. https://doi.org/10.1108/JAEE-10-2019-0194
Ahmed, A. H., & Hussainey, K. (2017). Is Egyptian corporate financial reporting becoming more conservative? Journal of Financial Reporting and Accounting, 15(3), 333–346. https://doi.org/10.1108/JFRA-06-2016-0049
Alsaadi, A. (2020). Financial-tax reporting conformity, tax avoidance and corporate social responsibility. Journal of Financial Reporting and Accounting, 18(3), 639–659. https://doi.org/10.1108/JFRA-10-2019-0133
Baird, J., & Zelin, R. (2000). The effects of information ordering on investor perceptions: An experiment utilizing presidents’ letters. Journal of Financial and Strategic Decisions, 13(3), 71–80.
Beattie, V. (2014). Accounting narratives and the narrative turn in accounting research: Issues, theory, methodology, methods and a research framework. The British Accounting Review, 46(2), 111–134. https://doi.org/10.1016/j.bar.2014.05.001
Bhardwaj, A., & Imam, S. (2019). The tone and readability of the media during the financial crisis: Evidence from pre-IPO media coverage. International Review of Financial Analysis, 63, 40–48. https://doi.org/10.1016/j.irfa.2019.02.001
Bonsall, 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
Bozanic, Z., Dietrich, J. R., & Johnson, B. A. (2017). SEC comment letters and firm disclosure. Journal of Accounting and Public Policy, 36(5), 337–357. https://doi.org/10.1016/j.jaccpubpol.2017.07.004
Cerbone, D., & Maroun, W. (2020). Materiality in an integrated reporting setting: Insights using an institutional logics framework. The British Accounting Review, 52(3), 100876. https://doi.org/10.1016/j.bar.2019.100876
Cho, C. H., Roberts, R. W., & Patten, D. M. (2010). The language of U.S. corporate environmental disclosure. Accounting, Organizations and Society, 35(4), 431–443. https://doi.org/10.1016/j.aos.2009.10.002
Cianci, A. M., & Kaplan, S. (2008). The effects of management’s preannouncement strategies on investors’ judgments of the trustworthiness of management. Journal of Business Ethics, 79(4), 423–444. https://doi.org/10.1007/s10551-007-9408-2
Daigle, R. J., Pinsker, R. E., & Pitre, T. J. (2015). The impact of order effects on nonprofessional investors’ belief revision when presented a long series of disclosures in an experimental market setting. Accounting Horizons, 29(2), 313–326. https://doi.org/10.2308/acch-50997
Demaline, C. (2020). Disclosure readability of firms investigated for books-and-records infractions: An impression management perspective. Journal of Financial Reporting and Accounting, 18(1), 131–145. https://doi.org/10.1108/JFRA-10-2018-0094
Drago, C., Ginesti, G., Pongelli, C., & Sciascia, S. (2018). Reporting strategies: What makes family firms beat around the bush? Family-related antecedents of annual report readability. Journal of Family Business Strategy, 9(2), 142–150. https://doi.org/10.1016/j.jfbs.2017.11.006
Du Toit, E. (2017). The readability of integrated reports. Meditari Accountancy Research, 25(4), 629–653. https://doi.org/10.1108/MEDAR-07-2017-0165
Eccles, R. G., Serafeim, G., & Krzus, M. P. (2011). Market interest in nonfinancial information. Journal of Applied Corporate Finance, 23(4), 113–127. https://doi.org/10.1111/j.1745-6622.2011.00357.x
El-Sayed, D. H., Adel, E., Elmougy, O., Fawzy, N., Hatem, N., & Elhakey, F. (2020). The influence of narrative disclosure readability, information ordering and graphical representations on non-professional investors’ judgment: Evidence from an emerging market. Journal of Applied Accounting Research, 22(1), 138–167. https://doi.org/10.1108/JAAR-06-2020-0115
Elkington, J. (1997). Cannibals with forks: The triple bottom line of 21st century business. Capstone Publishing.
Esch, M., Schnellbächer, B., & Wald, A. (2019). Does integrated reporting information influence internal decision making? An experimental study of investment behavior. Business Strategy and the Environment, 28(4), 599–610. https://doi.org/10.1002/bse.2267
Fatemi, A., Glaum, M., & Kaiser, S. (2018). ESG performance and firm value: The moderating role of disclosure. Global Finance Journal, 38, 45–64. https://doi.org/10.1016/j.gfj.2017.03.001
Haddad, A. E., Baalbaki Shibly, F., & Haddad, R. (2020). Voluntary disclosure of accounting ratios and firm-specific characteristics: The case of GCC. Journal of Financial Reporting and Accounting, 18(2), 301–324. https://doi.org/10.1108/JFRA-04-2019-0055
Hesarzadeh, R., & Rajabalizadeh, J. (2019). The impact of corporate reporting readability on informational efficiency. Asian Review of Accounting, 27(4), 489–507. https://doi.org/10.1108/ARA-11-2018-0203
Hsieh, C. C., Hui, K. W., & Zhang, Y. (2016). Analyst report readability and stock returns. Journal of Business Finance & Accounting, 43(1–2), 98–130. https://doi.org/10.1111/jbfa.12166
Ibrahim, A. N. (2018). An examination of order effects on investors’ judgments in an emerging market: An experimental market setting. Alexandria Journal of Accounting Research, 2(2).
Lahtinen, K. D., & Shipe, S. (2017). Readability of financial advisor disclosures. Journal of Empirical Finance, 44, 36–42. https://doi.org/10.1016/j.jempfin.2017.08.002
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
Leung, S., Parker, L., & Courtis, J. (2015). Impression management through minimal narrative disclosure in annual reports. The British Accounting Review, 47(3), 275–289. https://doi.org/10.1016/j.bar.2015.04.002
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
Lim, E. K. Y., Chalmers, K., & Hanlon, D. (2018). The influence of business strategy on annual report readability. Journal of Accounting and Public Policy, 37(1), 65–81. https://doi.org/10.1016/j.jaccpubpol.2018.01.003
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
Loughran, T., & McDonald, B. (2014). Measuring readability in financial disclosures. Journal of Finance, 69(4), 1643–1671. https://doi.org/10.1111/jofi.12162
Miller, B. P. (2010). The effects of reporting complexity on small and large investor trading. The Accounting Review, 85(6), 2107–2143. https://doi.org/10.2308/accr.00000001
Nazari, J. A., Hrazdil, K., & Mahmoudian, F. (2017). Assessing social and environmental performance through narrative complexity in CSR reports. Journal of Contemporary Accounting & Economics, 13(2), 166–178. https://doi.org/10.1016/j.jcae.2017.05.002
Patelli, L., & Pedrini, M. (2014). Is the optimism in CEO’s letters to shareholders sincere? Impression management versus communicative action during the economic crisis. Journal of Business Ethics, 124(1), 19–34. https://doi.org/10.1007/s10551-013-1855-3
Rjiba, H., Saadi, S., Boubaker, S., & Ding, X. (2021). Annual report readability and the cost of equity capital. Journal of Corporate Finance, 67, 101902. https://doi.org/10.1016/j.jcorpfin.2021.101902
Rodríguez Domínguez, L., & Noguera Gámez, L. C. (2014). Corporate reporting on risks: Evidence from Spanish companies. Revista de Contabilidad – Spanish Accounting Review, 17(2), 116–129. https://doi.org/10.1016/j.rcsar.2013.10.002
Samieifar, S., & Baur, D. G. (2021). Read me if you can! An analysis of ICO white papers. Finance Research Letters, 38, 101427. https://doi.org/10.1016/j.frl.2020.101427
Smeuninx, N., De Clerck, B., & Aerts, W. (2020). Measuring the readability of sustainability reports: A corpus-based analysis through standard formulae and NLP. International Journal of Business Communication, 57(1). https://doi.org/10.1177/2329488416675456
Stone, G. W., & Lodhia, S. (2019). Readability of integrated reports: An exploratory global study. Accounting, Auditing & Accountability Journal, 32(5), 1532–1557. https://doi.org/10.1108/AAAJ-10-2015-2275
You, H., & Zhang, X. (2009). Financial reporting complexity and investor underreaction to 10-K information. Review of Accounting Studies, 14(4), 559–586. https://doi.org/10.1007/s11142-008-9083-2
Downloads
Published
2026-02-27
Issue
Section
Articles
License
License
JREI: Journal of Regional Economics Indonesia, University of Merdeka Malang is licensed under Creative Commons Attribution Attribution-NonCommercial-NoDerivatives 4.0 International License.
Copyright
Authors who publish with this journal agree to the following terms:
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution Attribution-NonCommercial-NoDerivatives 4.0 International License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgment of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) before and during the submission process, as it can lead to productive exchanges and earlier and greater citation of published work (See The Effect of Open Access).
