Readability Score of Corporate Governance Report: Public Listed Companies in Malaysia

Disclosure of corporate governance is meant to narrow the information gap between management and stakeholders; however, this objective will be frustrated where the disclosure is not easily understood. This paper evaluates the ease of readability of the Corporate Governance (CG) Report and Corporate Governance Overview Statement issued by public listed companies from the Malaysian Main Market based on the Malaysian Code of Corporate Governance (MCCG) 2021, which has a comply-or-explain approach. Previous Malaysian studies focusing on the readability of corporate governance have considered only the chairman’s statement, notes to the account or the annual report as a whole without considering the CG Report as an independent regulatory narrative. Employing a quantitative approach using archival and content analysis methods, this paper highlights how the governance narratives of listed firms are extracted, prepared and analyzed using the Flesch Reading Ease, Flesch-Kincaid Grade Level, Gunning Fog and SMOG indices and how adjustments are made for governance-specific terms that create false difficulty. Readability will then have a relationship with firm size, industry, board attributes and the proportion of the reasons for exit provided by firms rather than reasons for compliance. Using past findings, this research assumes that governance narratives will be in the difficult category, explanatory narratives will be less readable than templated compliance narratives, and larger firms will have lower readability scores. Contributions of this research include an understanding of readability in governance reporting, five testable propositions and practical suggestions for regulators and issuers.

Readability, Corporate governance report, Public Listed Companies, Bursa Malaysia, Malaysian Code of Corporate Governance

1. Bloomfield, R. J. (2008). Discussion of "Annual report readability, current earnings, and earnings persistence." Journal of Accounting and Economics, 45(2–3), 248–252. [Google Scholar] [Crossref]

2. https://doi.org/10.1016/j.jacceco.2008.04.002 [Google Scholar] [Crossref]

3. Bonsall, S. B., IV, Leone, A. J., Miller, B. P., & Rennekamp, K. (2017). A plain English measure of financial reporting readability. Journal of Accounting and Economics, 63(2–3), 329–357. [Google Scholar] [Crossref]

4. https://doi.org/10.1016/j.jacceco.2017.03.002 [Google Scholar] [Crossref]

5. Cohen, J. (1960). A coefficient of agreement for nominal scales. Educational and Psychological Measurement, 20(1), 37–46. https://doi.org/10.1177/001316446002000104 [Google Scholar] [Crossref]

6. Flesch, R. (1948). A new readability yardstick. Journal of Applied Psychology, 32(3), 221–233. [Google Scholar] [Crossref]

7. https://doi.org/10.1037/h0057532 [Google Scholar] [Crossref]

8. Haniffa, R. M., & Cooke, T. E. (2002). Culture, corporate governance and disclosure in Malaysian corporations. Abacus, 38(3), 317–349. https://doi.org/10.1111/1467-6281.00112 [Google Scholar] [Crossref]

9. Hasan, M. M. (2020). Readability of narrative disclosures in 10-K reports: Does managerial ability matter? European Accounting Review, 29(1), 147–168. [Google Scholar] [Crossref]

10. https://doi.org/10.1080/09638180.2018.1556112 [Google Scholar] [Crossref]

11. Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X [Google Scholar] [Crossref]

12. Li, F. (2008). Annual report readability, current earnings, and earnings persistence. Journal of Accounting and Economics, 45(2–3), 221–247. https://doi.org/10.1016/j.jacceco.2008.02.003 [Google Scholar] [Crossref]

13. Lim, E. K. Y., Chalmers, K., & Hanlon, D. (2018). The influence of business strategy on annual report readability. Journal of Accounting and Public Policy, 37(1), 65–81. [Google Scholar] [Crossref]

14. https://doi.org/10.1016/j.jaccpubpol.2018.01.003 [Google Scholar] [Crossref]

15. Lo, K., Ramos, F., & Rogo, R. (2017). Earnings management and annual report readability. Journal of Accounting and Economics, 63(1), 1–25. https://doi.org/10.1016/j.jacceco.2016.09.002 [Google Scholar] [Crossref]

16. Loughran, T., & McDonald, B. (2014). Measuring readability in financial disclosures. The Journal of Finance, 69(4), 1643–1671. https://doi.org/10.1111/jofi.12162 [Google Scholar] [Crossref]

17. Metwally, A. B. M., El-Deeb, M. S., & Ahmed, E. A. (2024). Evaluating board characteristics' influence on the readability of annual reports: Insights from the Egyptian banking sector. Journal of Risk and Financial Management, 17(11), Article 500. https://doi.org/10.3390/jrfm17110500 [Google Scholar] [Crossref]

18. Mohamad, R., & Rahman, A. A. (2006). Readability of corporate annual reports of top 100 Malaysian companies. Malaysian Management Journal, 10(1–2). https://doi.org/10.32890/mmj.10.1-2.2006.8937 [Google Scholar] [Crossref]

19. Ong, T. S., Teh, B. H., Seng, K. C., & Ng, S. H. (2020). Does information overload of annual reports matter? International Journal of Financial Research, 11(2), 243–254. [Google Scholar] [Crossref]

20. https://doi.org/10.5430/ijfr.v11n2p243 [Google Scholar] [Crossref]

21. Rjiba, H., Saadi, S., Boubaker, S., & Ding, X. (2021). Annual report readability and the cost of equity capital. Journal of Corporate Finance, 67, Article 101902. [Google Scholar] [Crossref]

22. https://doi.org/10.1016/j.jcorpfin.2021.101902 [Google Scholar] [Crossref]

23. Securities Commission Malaysia. (2021). Malaysian Code on Corporate Governance. [Google Scholar] [Crossref]

24. https://www.sc.com.my [Google Scholar] [Crossref]

• Environmental, Social, and Governance (ESG) Integration as a Driver of Corporate Financial Sustainability: A Conceptual Synthesis
• Corporate Governance Issues in the Public Sector in Zimbabwe: Board Perspectives and Peculiarities.
• Women at the Helm of Corporate Sustainability Governance: An All - Female Board Sustainability Committee in a Sarawak State-Linked Conglomerate
• Corporate Governance and Internal Audit in State-Owned Enterprises in Zimbabwe: An Institutional Perspective