Board Gender Diversity and Managerial Obfuscation: Evidence from the Readability of Narrative Disclosure in 10-K Reports

Muhammad Nadeem ()
Additional contact information
Muhammad Nadeem: University of Otago

Journal of Business Ethics, 2022, vol. 179, issue 1, No 9, 153-177

Abstract: Abstract The readability of 10-K reports, in terms of linguistic complexity, determines the usefulness of information disclosure for stakeholders, particularly individual investors. Since investors largely depend on the financial communication in 10-K reports, firms have an ethical and legal responsibility to present disclosures in a language investors can understand. However, motivated by self-interest, managers obfuscate such disclosures to mask their own actions and hide unfavourable information. Building on the managerial obfuscation hypothesis grounded in stakeholder-agency and ethical-sensitivity theories, I hypothesize and empirically test the relationship between board gender diversity (BGD) and the readability of narrative disclosure in 10-K reports. Based on a relatively large sample of Russell 3000 firms for the years 2002–2018 (6,268 observations), I find a significant positive impact of BGD on 10-K reports’ readability, which in turn improves firm performance. Channel analysis reveals that the findings are driven by (a) female independent directors, and (b) their representation on audit and compensation committees; however, board activity (board meetings and directors’ attendance) does not appear to drive this relationship. Finally, I find that although gender discrimination in the appointment of directors spurs complex readability, the BGD-readability relationship is consistent in gender-biased and non-discriminant firms. I also check the robustness of our main empirical results in several ways. My study has important regulatory and managerial implications in that corporate governance is an important determinant of the readability of disclosure documents.

Keywords: Board gender diversity; Managerial obfuscation; Readability; Stakeholder-agency theory; Annual reports; M40; G34; G14 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://link.springer.com/10.1007/s10551-021-04830-3 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:jbuset:v:179:y:2022:i:1:d:10.1007_s10551-021-04830-3

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/10551/PS2

DOI: 10.1007/s10551-021-04830-3

Access Statistics for this article

Journal of Business Ethics is currently edited by Michelle Greenwood and R. Edward Freeman

More articles in Journal of Business Ethics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().