Doyoureadme? Temporal Trends in the Language Complexity of Financial Reporting

32 Pages Posted: 23 Oct 2019

See all articles by Danny Lesmy

Danny Lesmy

Hebrew University of Jerusalem - Jerusalem School of Business Administration

Lev Muchnik

Hebrew University of Jerusalem - Jerusalem School of Business Administration

Yevgeny Mugerman

Bar Ilan University

Date Written: September 26, 2019

Abstract

Regulators, practitioners, and researchers are expressing growing concern over the readability of financial disclosures. Several recent regulatory guidelines are aimed specifically at simplifying the language of financial reporting in order to ensure that the reports can be read and understood by the public at large. However, quantitative scientific evidence of the evolving linguistic complexity of finance is scarce. In this work we introduce various methods for measuring the linguistic complexity of financial texts. Some of these methods rely on advanced Natural Language Processing (NLP) techniques unavailable when earlier studies were conducted. We apply these methods to decades’ worth of texts from various domains. We have found that 10-K reports have grown substantially longer, more complex and less readable. In terms of education necessary to comprehend them, this increased complexity translates to additional 2.2 years of schooling over the course of 18 years. A similar pattern of using highly complex language is also evident in financial news. The latter finding suggests that financial reality is becoming increasingly difficult to describe and explain. In contrast, the language of other corpora, including general news and scientific publications, has become more readable over the same period of time.

Keywords: Readability, disclosure, SEC, 10-K, Fog, Flesch, textual analysis, NLP, plain English

JEL Classification: G10, G14

Suggested Citation

Lesmy, Danny and Muchnik, Lev and Mugerman, Yevgeny, Doyoureadme? Temporal Trends in the Language Complexity of Financial Reporting (September 26, 2019). Available at SSRN: https://ssrn.com/abstract=3469073 or http://dx.doi.org/10.2139/ssrn.3469073

Danny Lesmy

Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )

Mount Scopus
Jerusalem, 91905
Israel

Lev Muchnik (Contact Author)

Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )

Mount Scopus
Jerusalem, 91905
Israel

Yevgeny Mugerman

Bar Ilan University ( email )

Ramat Gan
5290002
Israel

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