Annual Report Readability and Donations to Large Charities

• In Event: Social, Governance and Environmental Considerations

Abstract

This paper examines how the readability of annual reports is related to the financial performance of large charities. We assess the readability of a charity’s annual report using a measure based on the Gunning Fog index of text complexity from the computational linguistics literature and by measuring the length (word total) of annual reports. Measuring financial performance by donations received, we anticipate that the annual reports of charities with lower performance (fewer donations) are shorter but harder to read. Our results support these hypotheses. We find a negative effect of a charity’s financial performance on the Fog index of its annual report and a positive effect of performance on the length of its annual report. Overall, our findings demonstrate that the performance of a charity is reflected in the textual characteristics of its external reports and that the readability of texts may obfuscate or clarify information depending on organizational performance.

Authors

• John M. Trussel, University of Tennessee-Chattanooga

• Philip Roundy, University of Tennessee at Chattanooga