Year and Industry-level Accounting Narrative Analysis: Readability and Tone Variation

Ekaete Efretuei; Year and Industry-level Accounting Narrative Analysis: Readability and Tone Variation. Journal of Emerging Technologies in Accounting 2020; doi: https://doi.org/10.2308/JETA-18-12-21-26.

51 Pages Posted: 24 Mar 2021 Last revised: 1 Jun 2022

See all articles by Ekaete Efretuei

Ekaete Efretuei

Liverpool Business School, Liverpool John Moores University

Date Written: November 17, 2020

Abstract

In this study, I examine variations in the textual complexity of annual report narrative disclosures using the Fog Readability Index and Fin-Neg word list Tone Index given year and industry effects. I analyse accounting narrative Readability and Tone based on firm years, associations between the two narrative measures, and industry data. Tests of the relationship between Readability and Tone show that negative narratives have higher Readability scores, supporting the obfuscation hypothesis that bad news tends to be more difficult to read. A year analysis shows that the negative relationship between Readability and Tone increases in significance over time (2006–2011). An industry analysis shows that the observed obfuscation tends to persist in basic materials; consumer services; financial; technology; and utilities industries. This study shows that considering the effect of variations between industry and firm years can inform annual report textual complexity research and associated empirical analyses.

Keywords: Industry analysis, Accounting narratives, Readability, Tone

JEL Classification: M41, M49

Suggested Citation

Efretuei, Ekaete, Year and Industry-level Accounting Narrative Analysis: Readability and Tone Variation (November 17, 2020). Ekaete Efretuei; Year and Industry-level Accounting Narrative Analysis: Readability and Tone Variation. Journal of Emerging Technologies in Accounting 2020; doi: https://doi.org/10.2308/JETA-18-12-21-26., Available at SSRN: https://ssrn.com/abstract=3788236 or http://dx.doi.org/10.2139/ssrn.3788236

Ekaete Efretuei (Contact Author)

Liverpool Business School, Liverpool John Moores University ( email )

Redmont Building
Brownlow Hill
Liverpool, L35UG
United Kingdom

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