Readability, Governance, and Strategic Transparency in Corporate Narrative Disclosures: An Integrative Examination of Financial Reporting Quality

• Dr. Matteo Rinaldi

  Department of Economics and Management, University of Bologna, Italy

  Author

Corporate narrative disclosures occupy a central position in modern financial reporting, serving as the primary medium through which firms communicate performance, strategy, risks, and governance practices to a diverse set of stakeholders. Over the past several decades, accounting and finance scholarship has increasingly recognized that the usefulness of these disclosures depends not only on their informational content but also on their linguistic characteristics, particularly readability, clarity, conciseness, and balance. This study develops a comprehensive and integrative examination of the determinants, mechanisms, and consequences of narrative disclosure readability within the broader context of corporate governance and regulatory frameworks. Drawing strictly on foundational and contemporary literature in accounting, corporate governance, and disclosure regulation, this article synthesizes insights from readability theory, agency theory, signaling theory, and behavioral finance to explain why firms differ systematically in the complexity of their annual reports and regulatory filings.

The study advances prior research by theoretically connecting readability measures, such as those derived from established linguistic formulas, with governance structures including board composition, gender diversity, and oversight effectiveness. It further examines how regulatory interventions emphasizing plain English disclosure have reshaped managerial incentives and disclosure practices over time. Through an extensive qualitative and descriptive methodological approach, the article explains how reporting complexity influences investor behavior, earnings persistence interpretation, and market efficiency, while also considering managerial obfuscation as a strategic response to performance pressures and governance constraints.

The findings synthesized in this study suggest that more readable disclosures are generally associated with higher earnings persistence, lower information asymmetry, and more informed investor trading. However, the relationship is nuanced and contingent upon firm size, governance quality, regulatory environment, and managerial incentives. The discussion highlights unresolved tensions between completeness and conciseness, transparency and strategic opacity, and regulatory standardization versus managerial discretion. By offering a deeply elaborated theoretical framework and identifying critical gaps in existing literature, this article provides a foundation for future empirical and interdisciplinary research on narrative financial reporting and corporate transparency.

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