Disclosure And Performance: An Indian Evidence

Abstract

This paper aims to examine the relationship between the readability of annual reports and corporate governance in Indian listed firms while controlling for firm’s performance and specific features such as size, age and industry type. The current study uses both legitimacy theory and agency theory to create testable hypotheses. It tests for obfuscation in annual reports by investigating the relationship between the readability of narrative disclosures (NDs) and corporate governance from 2015 to 2019 using a sample of 82 firm-year listed companies on the Bombay Stock Exchange.   The findings show that firms with low annual report readability are poorly governed which is an indication of the existence of ‘‘obfuscation.’’ Indian firms may use narrative complexity as a disclosure strategy to enhance their image and consequently maintain their social legitimacy. Although the study findings suffer from limited global generalization, they can be generalized across Asian countries. Thus, future cross-country research is encouraged. The findings encourage India’s policymakers to instate a policy for ‘‘Plain English’’ writing to make NDs easy to read by international investors. Present study is one of the very few studies that examines the readability of annual reports in emerging market economies, i.e. India. The study contributes to the paucity of research that examines English-written annual reports in non-English speaking countries.