Lost in the FOG: Growing Complexity in Financial Reporting – A Comparative Study

24 Pages Posted: 21 Aug 2023

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: August 16, 2023

Abstract

Employing Item 7 of the 10-K reports over a 26-year period, this study examines the evolving readability of financial reporting. Using a dataset of nearly 200,000 reports retrieved from SEC EDGAR filings, we observe a noticeable decline in readability over time. Using the Fog Index as a measure, we can see that each year, the number of years of schooling required to comprehend a given text grows by nearly a month. Financial reports are becoming increasingly inaccessible to a significant segment of the population as a result of this trend. To put these findings in perspective, we incorporate data from diverse corpora encompassing almost 10 million documents, offering a broader understanding of financial text complexity. The majority of the tested financial corpora exhibit a systematic increase in text readability over the last decades. The Wall Street Journal stands as a notable exception and exhibits a moderate decline in readability over time, although at the rate incomparable to that of Item 7.

Keywords: Readability, Financial Reporting, Item 7, 10-K, Fog Index, NLP, Plain English, BloombergGPT

JEL Classification: G10, G14

Suggested Citation

Lesmy, Danny and Muchnik, Lev and Mugerman, Yevgeny, Lost in the FOG: Growing Complexity in Financial Reporting – A Comparative Study (August 16, 2023). Available at SSRN: https://ssrn.com/abstract=4542676 or http://dx.doi.org/10.2139/ssrn.4542676

Danny Lesmy

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

Mount Scopus
Jerusalem, 91905
Israel

Lev Muchnik

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

Mount Scopus
Jerusalem, 91905
Israel

Yevgeny Mugerman (Contact Author)

Bar Ilan University ( email )

Ramat Gan
5290002
Israel

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