Does product market competition influence annual report readability?

Abstract

We study product market competition’s influence on annual report readability. As competition increases in an industry, our findings show that firms reduce the readability of their annual reports. We further document that the impact of competition on annual report readability is stronger for research and development (R&D)-intensive firms, for firms that have a higher level of trade secrecy (i.e. proprietary information), and for firms with higher levels of CEO performance-based incentives. Overall, our findings highlight the importance of the proprietary cost effect of competition on annual report readability.