Readability of Corporate Annual Reports of Private Commercial Banks to Individual Investors

Abstract

Investors both existing and potential rely largely on corporate annual reports when making important strategic and financial decisions. Corporate annual reports contain information about the company and its performance expressed in quantitative and narrative texts. Though the principal objective of the narrative texts is to supplement the report's financial statements, they have a great importance to the individual investors, especially to those who don't have sufficient background knowledge in accounting. In recent years readability of corporate annual reports have become a concern of the accounting regulatory agencies in countries like USA and UK. In Bangladesh the urgency of improving the readability of corporate annual reports is not felt yet. This does not mean that, the annual reports of joint stock companies of Bangladesh are clear or readable. Very few studies attempted to find out the readability of corporate annual reports of Bangladesh. The present study aims at analyzing, examining and comparing readability of corporate annual reports of Private Commercial Banks (PCBs) of Bangladesh to individual investors. For the study 12 PCBs have been selected from 24 PCBs that were enlisted on the Dhaka Stock Exchange (DSE) on December 19, 2006. Annual reports, which were published in English both in the year 2004 and 2005 were selected for the study. Flesch test and Lix test have been used to measure the readability of corporate annual reports of PCBs of Bangladesh. Four text extracts of corporate· annual reports have been selected for the study, such as Chairman's address, Directors' report, Notes to the accounts and Auditor's report. Observed readability scores have been tabulated first and then analyzed using SPSS 12.0 software .package. t test has been run to find out significance of difference in the scores. Spearman's correlation has been used to test association between readability of the corporate annual reports and the corporate variables. The current study measures the total pages of the corporate annual reports and the coverage of different types of contents, such as, texts, quantitative and others in every annual report to find out the importance of texts. It is observed from the study that the texts are important contents of the corporate annual reports of PCBs. Despite of the wide coverage of the texts it is observed from the study that the texts are difficult or very difficult to read. Flesch score shows that Chairman's address, Directors' report and Auditor's report are difficult, while Notes to the accounts are very difficult to read. Flesch score also shows that the annual reports of different PCBs are either difficult or very difficult. While, Lix score shows that all the text extracts are very difficult to read except the Chairman's address of the annual reports of the year 2004. Lix score suggests that, the corporate annual reports of PCBs are becoming more difficult over years. It is also observed that readability of Chairman's address, Director's report, Notes to the accounts and auditor's report of corporate annual reports of PCBs are significantly different from each other. Therefore, PCBs are not maintaining uniformity in readability throughout the annual reports. ----------