Corporate Reporting Readability and Regulatory Review Risk

Abstract

Purpose — The regulatory review process imposes significant costs on companies. Therefore, managers try to find ways to avoid the regulatory review risk. This paper investigates whether corporate reporting readability reduces the regulatory review risk.

Design/methodology/approach — This study measures the corporate reporting readability using the Fog Index. It measures the regulatory review risk using the probability of receiving a comment letter from the Securities and Exchange Organization of Iran.

Findings — The findings reveal that corporate reporting readability reduces the regulatory review risk, after controlling for the factors that affect the regulatory review risk.

Originality/value — The current paper identifies an easy strategy for managers to mitigate one of the important risks faced by companies. Thus, the results will be of interest to managers, audit committees, and stakeholders involved in the regulatory review process.

Keywords: Accounting; Corporate Reporting Readability, Managers, Regulatory Review Risk, Comment Letters, Processing Fluency Theory

JEL Classification: M40