Annual report readability and firms’ investment decisions

Figures & data

Table 1. The variable definition.

Variable name	Content	Expected
	Dependent variables (Investment)
LnCAPEX	= Ln (Capital Expenditure)
	Independent variables (Non-Readability)^a
FKG	Annual report readability (Flesch Kincaid Grade)	–
SMOG	Annual report readability (Simple Measure of Gobbledygook)	–
	Control variables
SIZE	=Ln (Total assets)	+
LEV	=Liability/total assets	–
GROWTH	= (Revenuet-revenuet-1)/revenuet-1	+

a FKG and SMOG are indicators of readability; by definition of the readability, we make clear above for this research, FKG and SMOG are directly measure of non-readability, as the higher the values of these indicators, the more difficult it is to read and understand a document.

Figure 1. The Annual report readability.

Table 2. Descriptive variables – the indicators (FKG and SMOG) of annual report readability.

Variable	Obs	Mean	Std. Dev	Min	Max
FKG	1,530	3.56	2.67	0.10	10.40
SMOG	1,530	4.34	2.28	3.2	10.8

Table 3. Descriptive variables – firms’ characteristics – control variables of the model.

Variable	Mean	Std. Dev	Min	Max
CAPEX	60	300	0	5000
LEV	0.496	0.408	0.022	8.875
GROWTH	0.057	0.562	−1.000	8.962
SIZE	19.846	1.737	11.249	24.796
Observation = 1,530

Table 4. The result of regressions – FEM, REM an DGMM models: Estimation of the relationship between measures of readability (FKG, SMOG) and firms’ investments.

	(1)	(2)	(3)	(4)	(5)	(6)
Variables	Fixed effect model	Fixed effect model	Random effect model	Random effect model	DGMM	DGMM
LnCAPEXt-1					0.657***	0.652***
					(0.0790)	(0.0784)
FKGt-1	−0.0281***		−0.0275***		−0.0405***
	(0.0106)		(0.0106)		(0.0115)
SMOGt-1		−0.0239**		−0.0264**		−0.0448***
		(0.0121)		(0.0121)		(0.0125)
LEVt-1	−0.566***	−0.562***	−0.405**	−0.400**	−3.199***	−3.113***
	(0.172)	(0.173)	(0.161)	(0.161)	(1.192)	(1.195)
GROWTHt-1	0.292***	0.291***	0.287***	0.287***	0.221***	0.229***
	(0.0529)	(0.0530)	(0.0528)	(0.0528)	(0.0676)	(0.0674)
SIZEt-1	0.454***	0.440***	0.790***	0.787***	0.412***	0.413***
	(0.134)	(0.134)	(0.0632)	(0.0633)	(0.0933)	(0.0927)
Constant	6.334**	6.603**	−0.456	−0.382	−1.380**	−1.298**
	(2.662)	(2.663)	(1.261)	(1.263)	(0.653)	(0.640)
Observations	1,229	1,229	1,229	1,229	1,223	1,223
Number of firms	251	251	251	251	251	251
Hausman test	0.000
AR(1)					0.000	0.000
AR(2)					0.803	0.858
Hansen test					0.377	0.388

Standard errors in parentheses.

*** p < 0.01, ** p < 0.05, * p < 0.1.

Table 5. Quantile regression.

	(1)	(2)	(3)	(4)
CAPEX	q25	q50	q75	q95
FKGt-1	−0.0130	−0.0247**	−0.0362***	−0.0483**
	(0.0135)	(0.00972)	(0.0133)	(0.0210)
SMOGt-1	−0.0112	−0.0223**	−0.0345**	−0.0464**
	(0.0142)	(0.0105)	(0.0146)	(0.0229)

Standard errors in parentheses.

*** p < 0.01, **p < 0.05, *p < 0.1.