Earnings management and annual report readability

• 成果类型: Article
• 署名作者: Lo, Kin; Ramos, Felipe; Rogo, Rafael
• 署名单位: University of British Columbia; FUCAPE Business School
• 刊物名称: JOURNAL OF ACCOUNTING & ECONOMICS
• ISSN/ISSBN: 0165-4101
• DOI: 10.1016/j.jacceco.2016.09.002
• 发表日期: 2017
• 关键词: real activities manipulation; disclosure; investors

摘要

We explore how the readability of annual reports varies with earnings management. Using the Fog Index to measure readability (Li, 2008), and focusing on the management discussion and analysis section of the annual report (MUM), we predict and find that firms most likely to have managed earnings to beat the prior year's earnings have MD&As that are more complex. This disruption of the overall pattern of readability increasing with the level of earnings found in Li (2008) challenges the ontological explanation that good news is inherently easier to communicate, and shows that obfuscation contributes to making disclosures more complex. Crown Copyright (C) 2016 Published by Elsevier B.V. All rights reserved.