Generalist CEOs and the readability of the 10-K report

Rachana Kalelkar, Hongkang Xu, Duong Nguyen and Zheng Chen

Advances in accounting, 2024, vol. 65, issue C

Abstract: In this paper, we investigate the association between the general managerial ability of CEOs and the readability of 10-K reports. We find that the readability of 10-K reports is lower for firms managed by CEOs with general managerial ability. Our result is robust to change analysis, an alternate readability measure, various fixed effects, an instrumental variable approach, a propensity score approach, and an entropy balancing approach. Our additional analysis reveals that general managerial ability is negatively associated with the readability of management discussion and analysis (MD&A). Moreover, the disclosure tone of 10-K reports and MD&A is conservative when firms are managed by generalist CEOs. Our findings also reveal that CEO tenure moderates the positive association between the general ability index and Gunning Fog index of 10-K reports. Finally, we find that high investment level and misstatement strengthen the association between the general ability index and the readability of 10-K reports, thus supporting the obfuscation hypothesis. We, therefore, conclude that firms incur costs in the form of lower disclosure quality when they opt for a generalist CEO.

Keywords: Generalist CEO; Gunning Fog index; 10-K readability; CEO tenure; Bog index (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:advacc:v:65:y:2024:i:c:s0882611023000391

DOI: 10.1016/j.adiac.2023.100680

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