A Comparative Study on Readability Levels of Annual Reports and Banks Performance

Abstract

Readability refers to the relative ease in which a written passage of text can be read and understood by others. Numerous mathematical formulas have been developed to support writers in computing the readability of their script. The research work is an initiative to test the relationship of readability levels of annual reports of banking sector with their performance figures. If disclosure readability is strategically used by managers to hide adverse information, a relationship between firm performance and readability would be expected. So it is essential to study the readability scores of annual reports and to verify its relation with some of the important parameters which can make significant change in their readability scores. The study covers the annual reports of banking sector in India and compares the readability scores of these reports on the basis of independent variable i.e. profitability. Almost all the Indian commercial banks are covered and the sample of annual reports collected is 88. The study considered the annual reports of Indian commercial banks for 3 years from 2009 to 2012. Furthermore, 6 hypotheses are constructed to observe the relationship between the readability of annual reports and profitability levels of banks. The results propose that banks with good or bad financial results do not show their outcome on readability of annual report. Therefore if the disclosures of the Company are more concise and syntactically simple, it does not indicate that the firm's performance was good.