Organizational capital and readability of financial reports

Abstract

This study uses pooled OLS technique to examine the effect of organizational capital on the readability of 10-Ks reports of a large sample of US firms from 1993 to 2019. The main finding reveals that firms with higher organizational capital report more readable 10-Ks. The effect of organizational capital on readability continues to be significant even after SEC's Plain English Rules of 1998. Our findings also reveal that organizational capital lessens the adverse effects of loss on the readability of annual reports. Overall, our findings reveal the importance of organizational capital in how a company disseminates information in its annual reports.