Readability of Management Reviews in the Annual Reports of Listed Companies of Bangladesh

This paper studies readability of management reviews of some listed companies of Bangladesh. Management review plays a significant role in corporate communication to the stakeholders. Therefore, enhancing the readability of annual reports, including the management reviews, has been the focus of extensive prior research. However, there is no such study in a developing capital market like Bangladesh. In response to a perceived need for further research into this area, an analysis of management reviews, which include director's report or chairman's letter of 139 listed companies of the Dhaka Stock Exchange (DSE) Ltd. was conducted. We empirically measure the readability of management reviews using the following three variables - the Flesch Reading Ease Score, the FOG Index, and the length of the review. We have evaluated the correlation between readability score and elements of texts - words, sentences, paragraphs, etc. Also, readability scores and some variables - current performance (ROA), market category (e.g., A, B, Z, and G) and industry category, and age of the firm - are compared. Our results show that the majority of the management reviews are found more difficult to read, except only a few companies. Although some studies conclude that profitable corporations have more readable narrative texts than unprofitable ones, we do not find any clear relationship between Flesch Score and return on asset (ROA) and share category. Rather we find management reviews are easier by the poor performing industries at DSE, and are difficult by well performing industries. Based on mean of words and length, firms in the sector of Banks, Investment, Service, Fuel and Power, Insurance have the longest directors' reports, everything else equal, longer documents seem more deterring and more difficult to read. The study can be based on the readability of the listed companies over the years rather than on a particular year. The study will help to monitor the effectiveness of corporate communication through management discussion and analysis in the annual report. It can also signal any potential agency problems. This is the first paper of its kind in Bangladesh which may help tremendously in improving corporate communication and guides the future researchers.