Examining the Influence of Corporate Governance Components on the Tone and Readability of Financial Reporting in the Tehran Stock Exchange

Authors

https://doi.org/10.22105/tqfb.vi.63

Abstract

The primary objective of the present study is to examine the influence of Corporate Governance (CG) components on the  TONE of Financial Reporting (TONE) and readability of Financial Reporting (FR) among firms listed on the Tehran Stock Exchange (TSE). In this study, CG mechanisms including Managerial Ownership (MO), Institutional Ownership (IO), Family Ownership (FO), Board Size (BS), Board Independence (BI), Board Gender Diversity (BGD), Audit Committee Independence (ACI), Frequency of Audit Committee Meetings (FACM), and Audit Committee Size (ACS) are considered as the independent variables. The TONE and readability of  FR are examined as the dependent variables. The statistical sample consists of 125 firms observed over a seven year period from 2019 to 2025. Data analysis is conducted using multiple regression analysis. The results related to the first hypothesis indicate that IO, BI, and ACI have a positive and statistically significant effect on the TONE of  FR, while MO and FO exhibit a negative and statistically significant association with reporting TONE. The findings related to the second hypothesis show that the  FACM, BI, and ACI  have a positive and statistically significant effect on the readability of FR, whereas MO and FO are negatively and significantly associated with Financial Reporting Readability (FRR).

Keywords:

Corporate governance, Financial reporting tone, Financial reporting readability, Impression management, Information asymmetry

References

  1. [1] Awuor, O. B. (2016). The effect of managerial ownership on stock performance of firms listed at the Nairobi securities exchange [Thesis]. http://hdl.handle.net/11295/98741
  2. [2] Merkl Davies, D. M., & Brennan, N. (2007). Discretionary disclosure strategies in corporate narratives: Incremental information or impression management? Journal of Accounting Literature, 26, 116–196. http://hdl.handle.net/10197/2907
  3. [3] Mirali, M., Gholamimoghaddam, F., & Hesarzadeh, R. (2018). Investigation of the relationship between financial reporting tone with future corporate performance and market return. Journal of Financial Accounting Knowledge, 5(3), 81–98. (In Persian). https://doi.org/10.30479/jfak.2018.1513
  4. [4] Iatridis, G. E. (2016). Financial reporting language in financial statements: Does pessimism restrict the potential for managerial opportunism? International Review of Financial Analysis, 45, 1–17. https://doi.org/10.1016/j.irfa.2016.02.004
  5. [5] Sarvi, A., Talebnia, P., Pourzamani, Z., & Jahanshad, A. (2018). Assessment of accounting standards readability and understandability from accountants’ and auditors’ perspectives using Flesch and Cloze indices. Applied Financial Reporting Research, 7(13), 241–274. (In Persian). https://www.noormags.ir/view/fa/articlepage/1444957
  6. [6] Li, F. (2011). Textual analysis of corporate disclosures: A survey of the literature. Journal of Accounting Literature, 29(1), 143–165. https://www.cuhk.edu.hk/acy2/workshop/20110215FengLI/Paper1.pdf
  7. [7] Ajina, A., Laouiti, M., & Msolli, B. (2016). Guiding through the fog: Does annual report readability reveal earnings management? Research in International Business and Finance, 38, 509–516. https://doi.org/10.1016/j.ribaf.2016.07.021
  8. [8] Hasan, M. M. (2017). Readability of narrative disclosures in 10-K reports: Does managerial ability matter? European Accounting Review, 29(1), 147–168. https://doi.org/10.1080/09638180.2018.1528169
  9. [9] Jones, M. J. (2012). Creative accounting, fraud and international accounting scandals. John Wiley & Sons. https://doi.org/10.1002/9781119208907.ch6
  10. [10] Goel, S., Gangolly, J., Faerman, S. R., & Uzuner, O. (2010). Can linguistic predictors detect fraudulent financial filings? Journal of Emerging Technologies in Accounting, 7(1), 25–46. https://doi.org/10.2308/jeta.2010.7.1.25
  11. [11] Skillicorn, D. B., & Purda, L. (2012). Detecting fraud in financial reports. 2012 European Intelligence and Security Informatics Conference (pp. 7–13). IEEE. https://doi.org/10.1109/EISIC.2012.8
  12. [12] Norouzi, M., Azinfar, K., Abbasi, E., & Dadashi, I. (2020). Modeling the moderating role of management ability in the relationship between financial reporting readability and agency cost. Financial Accounting Research, 12(1), 1–18. (In Persian). https://doi.org/10.22108/far.2019.116175.1433
  13. [13] Hsieh, C. C., Hui, K. W., & Zhang, Y. (2016). Analyst report readability and stock returns. Journal of Business Finance & Accounting, 43(1–2), 98–130. https://doi.org/10.1111/jbfa.12166
  14. [14] Blanco, B., Dhole, S., & Gul, F. A. (2022). Financial statement comparability and accounting fraud. Journal of Business Finance & Accounting, 50(7–8), 1166–1205. https://doi.org/10.1111/jbfa.12652
  15. [15] Bonsall IV, S. B., & Miller, B. P. (2017). The impact of narrative disclosure readability on bond ratings and the cost of debt. Review of Accounting Studies, 22(2), 608–643. https://doi.org/10.1007/s11142-017-9388-0
  16. [16] Henseler, J., & Ringle, C. M. (2009). The use of partial least squares path modeling in international marketing. In Advances in international marketing (pp. 277–319). Emerald. https://doi.org/10.1108/S1474-7979(2009)0000020014
  17. [17] Mirzaei, S., Abdoli, M. R., & Koushki Jahromi, A. (2020). The effect of pessimistic financial reporting tone on bold reporting: Protecting shareholder rights. Experimental Financial Accounting Studies, 17(65), 109–138. (In Persian). https://doi.org/10.22054/qjma.2020.46568.2054
  18. [18] Kazemi Olum, M., Abdi, M., Zolghi, H., & Jalalvand, H. (2020). The impact of financial reporting readability on audit project risk measures. Accounting and Auditing Reviews, 27(2), 202–230. (In Persian). https://doi.org/10.22059/acctgrev.2020.299740.1008366
  19. [19] Henry, E. (2008). Are investors influenced by how earnings press releases are written? Journal of Business Communication, 45(4), 363–407. https://doi.org/10.1177/0021943608319388
  20. [20] Loughran, T., & McDonald, B. (2011). When is a liability not a liability? Textual analysis, dictionaries, and 10-Ks. The Journal of Finance, 66(1), 35–65. https://doi.org/10.1111/j.1540-6261.2010.01625.x

Downloads

Published

2026-07-10

Issue

Vol. 3 No. 3 (2026): Transactions on Quantitative Finance and Beyond

Section

Articles

License

Copyright (c) 2024 Transactions on Quantitative Finance and Beyond

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

How to Cite

Alipour, S. (2026). Examining the Influence of Corporate Governance Components on the Tone and Readability of Financial Reporting in the Tehran Stock Exchange. Transactions on Quantitative Finance and Beyond, 3(3), 210-221. https://doi.org/10.22105/tqfb.vi.63
Crossref
Scopus
Google Scholar
Europe PMC

Similar Articles

1-10 of 58

You may also start an advanced similarity search for this article.