[01] Muneeb Ahmad, College of Business Administration, Liaoning Technical University, Huludao, China. [02] Zhou Maochun, College of Business Administration, Liaoning Technical University, Huludao, China.

This study is conducted to investigate the issue of readability of the annual report, which caused the conflict between the shareholders and the management. Annual reports are the integral source of information for the shareholders regarding their investment. The most important thing here is the readability of the financial statements. Moreover, as the decisions of investors based on the financial information stated in the financial statements so the reliability of the financial is another important aspect. To explore this important aspect, this study is an effort to facilitate the investors to do their investment decisions, especially in developing countries like Pakistan. It is a fact that the Pakistani majority of the investors are not from the financial background and to understand and readability of the financial statements is all the time issue for them. To investigate the importance of the readability, we took the data of 21 non-financial companies which are in the KSE-30 index of Pakistan for the 10 years (2008-2017). The findings of our results depict that those firms whose annual report is more readable as compare to other facing low problem of the conflict between the shareholders and the management. Further results of this study indicate that under the better quality measures, relevant audit increases the readability of the annual report, which reduces the agency cost.

Financial Reports, Shareholders, Integral Source and Pakistan

[01] Bonsall IV, S. B., Leone, A. J., Miller, B. P., & Rennekamp, K. (2017). A plain English measure of financial reporting readability. Journal of Accounting and Economics, 63 (2-3), 329-357. [02] Luo, J. H., Li, X., & Chen, H. (2018). Annual report readability and corporate agency costs. China Journal of accounting research, 11 (3), 187-212. [03] You, H. and X. Zhang. (2009). Financial Reporting Complexity and Investor Underreaction to 10-K Information. Review of Accounting Studies, 14, 559-586. [04] Ajina, A., Laouiti, M., & Msolli, B. (2016). Guiding through the Fog: Does annual report readability reveal earnings management?. Research in International Business and Finance, 38, 509-516. [05] Nelson, K. K., & Pritchard, A. C. (2007). Litigation risk and voluntary disclosure: The use of meaningful cautionary language. [06] Ertugrul, M., Lei, J., Qiu, J., & Wan, C. (2017). Annual report readability, tone ambiguity, and the cost of borrowing. Journal of Financial and Quantitative Analysis, 52 (2), 811-836. [07] Loughran, T., & McDonald, B. (2014). Measuring readability in financial disclosures. The Journal of Finance, 69 (4), 1643-1671. [08] TAN, H. T., Ying Wang, E., & Zhou, B. O. (2014). When the use of positive language backfires: The joint effect of tone, readability, and investor sophistication on earnings judgments. Journal of Accounting Research, 52 (1), 273-302. [09] Asay, H. S., Elliott, W. B., & Rennekamp, K. (2016). Disclosure readability and the sensitivity of investors' valuation judgments to outside information. The Accounting Review, 92 (4), 1-25. [10] Yang, W. S., Park, B. W., Jung, E. H., Jeon, N. J., Kim, Y. C., Lee, D. U.,...& Seok, S. I. (2017). Iodide management in formamidinium-lead-halide–based perovskite layers for efficient solar cells. Science, 356 (6345), 1376-1379. [11] Lang, M., & Stice-Lawrence, L. (2015). Textual analysis and international financial reporting: Large sample evidence. Journal of Accounting and Economics, 60 (2-3), 110-135. [12] Biddle, G. C., Hilary, G., & Verdi, R. S. (2009). How does financial reporting quality relate to investment efficiency? Journal of accounting and economics, 48 (2-3), 112-131. [13] De Franco, G., Hope, O. K., Vyas, D., & Zhou, Y. (2015). Analyst report readability. Contemporary Accounting Research, 32 (1), 76-104. [14] Ben-Amar, W., & Belgacem, I. (2018). Do socially responsible firms provide more readable disclosures in annual reports?. Corporate Social Responsibility and Environmental Management, 25 (5), 1009-1018.