Business Strategies and Annual Report Readability
Accounting and Finance, Forthcoming
Posted: 4 Jun 2018
Date Written: May 22, 2018
This study investigates the association between firm-level business strategy, and the readability of narrative disclosures in annual reports. Since business strategy affects the information environment and financial performance of firms, we expect the readability of narrative disclosures to vary with the particular business strategy that a firm pursues. In accord with this expectation, we find that firms with prospector-type business strategies produce less readable narratives, while those with defender-type business strategies produce more readable narratives. We also document that the association between strategy and readability is partially mediated by organizational performance, although the mediation effect is rather modest. These findings are robust when subjected to a series of sensitivity tests.
Keywords: business strategies; narrative disclosures; prospectors; defenders; analyzers
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