Textual Complexity, Readability, and Corporate Performance: An Integrative Analysis of Narrative Financial Disclosure and Market Consequences

Abstract

Narrative disclosure has progressively moved from the periphery of financial reporting to its conceptual and empirical core. While traditional accounting research focused predominantly on numerical financial statements, contemporary corporate reporting increasingly relies on textual narratives such as annual reports, management discussion and analysis sections, sustainability reports, and earnings call transcripts. These narratives are no longer viewed as neutral explanations accompanying financial numbers; rather, they are now understood as strategic communication instruments that shape investor perception, influence capital market outcomes, and reflect managerial intent. Drawing strictly on the established body of literature referenced in this study, this article develops a comprehensive and theoretically grounded investigation into the relationships among textual complexity, readability, voluntary disclosure practices, and corporate performance.
The study integrates classical disclosure theory with modern textual analysis perspectives to explain how narrative characteristics influence information asymmetry, investment efficiency, cost of capital, stock liquidity, and performance evaluation. Foundational theories such as the information content of earnings, voluntary disclosure theory, impression management, and incomplete revelation hypothesis are re-examined through the lens of readability and linguistic complexity. The article further explores how firms adjust narrative strategies in response to profitability, governance structures, institutional ownership, sustainability pressures, and regulatory environments across different national contexts.
Methodologically, the paper synthesizes approaches used in prior empirical studies, including automated textual analysis, readability indices, sentiment analysis, and qualitative narrative assessment, while emphasizing the conceptual implications rather than numerical modeling. The descriptive results derived from the literature suggest that lower readability and higher complexity are often associated with poorer performance, higher earnings management, increased information risk, and adverse market reactions. However, this relationship is not uniform; it varies across institutional settings, reporting objectives, and stakeholder audiences.
The discussion highlights significant theoretical tensions between transparency and obfuscation, voluntary disclosure and strategic concealment, and standardization versus managerial discretion. Limitations of existing research are critically evaluated, including methodological constraints, language biases, and contextual heterogeneity. The article concludes by outlining future research directions that integrate multimodal analysis, sustainability narratives, and cross-country comparative frameworks, emphasizing the continued relevance of narrative disclosure as a determinant of corporate accountability and market efficiency.