Earnings Management And The Readability Of Annual Report

As an important medium for transmitting information to stakeholders,the stakeholders' understanding of annual reports will directly affect the efficiency of resource allocation in the capital market.In recent years,the CSRC has continuously revised the Content and Format of the Information Disclosure Content and Format Guidelines of Companies That Offer Securities to the Public No.2.As can be seen,the annual reports of enterprises are increasingly valued,especially for their non-financial information.This phenomenon also gives management more room to manage the impression of the annual report to confuse the readers.Because of the existence of impression management factors,the researches of the complexity of annual reports have certain practical significance.As a result,readability is becoming more widely used in the researches about corporate reporting.Readability,as the name suggests,is simply the difficulty of reading an article.Foreign scholars have studied the company's performance,external auditing identity,corporate governance,company size,stock returns and other factors will have an impact on the readability of the annual report,while domestic research on the readability of the annual report is currently rare.Like in 2008,Li found the that the higher the readability of annual report the better the performance of the company.However,the reason for this positive correlation is not clear.Is it because the management deliberately manipulates the information or the loss-making company itself is more difficult to understand? In addition,is there such a phenomenon in the domestic market? Based on that,this paper uses the same FOG formula as Li's research,but selects the Chinese annual reports as samples.By using the computer programming,we use the relationship between the earnings management and annual report to predict that this positive correlation is partly due to management's deliberate confusion about the reader's understanding of the annual report.Because the earnings management representative has a certain degree of management manipulation.In addition,by using financial restatement indicators as a supplement to earnings management,we expect to prove more fully that the positive correlation between annual report readability and company performance is largely due to management's deliberate confusion.The article calculates the degree of earnings management through OSL regression,and uses Stata to perform panel data regression.The final results show that the degree of earnings management and financial restatement are significantly negatively correlated with the readability of the annual report.From the above research conclusions,the positive correlation between the readability of the annual report and the company's performance is partly due to the management's deliberate manipulation of the annual report.Therefore,by reading the annual report,readers can compare the complexity of the annual reports of different companies or the same company at different times,then they can probably presume the performance of the company and whether the annual report has been manipulated by the management on the text of the annual report.