Integrated Reporting and the Readability of Annual Reports. Do Investors Care?

This study examines whether the mandatory adoption of Integrated Reporting (IR) in South Africa improves the ease of reading of annual reports for investors. Using the coherence of text as a measure of readability of the text, I demonstrate that adoption of IR leads to an increase in the coherence of annual reports. Further, I show that investor response is higher and stock price delay is lower for firms with high coherence reports post the adoption of IR. Finally, I document that coherence mitigates the negative effects of linguistic complexity, captured by FOG Index, on investor response and stock price delay. My findings contribute to the growing literature on IR by documenting a potential benefit for investors, and also suggests that Fog Index or other traditional measures of linguistic complexity may not be sufficient to gauge the effectiveness of IR adoption in improving annual report readability