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Mark Humphery-Jenner, Decoding the complexity: How financial reports have grown less readable, why it matters, and what we can do about it, Capital Markets Law Journal, Volume 20, Issue 1, March 2025, kmaf002, https://doi.org/10.1093/cmlj/kmaf002
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Extract
1. Introduction
There are frequent debates about what firms must disclose and how they must disclose it. Disclosure requirements have increased over time. However, this has led to concerns that disclosure readability might consequently decrease as disclosures become longer and more complex. This is not a new phenomenon. HSBC’s 2007 annual report was so large and heavy that it became an injury risk for postal workers, and the Royal Mail restricted how many workers could carry.1 This report contained 133 pages of notes. It also include the EU-mandated ‘business review’, which has been criticized for its vagueness and tendency towards complex language.2 This begs the questions of whether and how much readability has worsened over time, whether firms should care, and how regulators should approach it.
Reports have become more complex, according to commonly used measures of document readability. This has worsened over time according to the data obtained for US-listed firms. It has also spiked at specific flashpoints, such as financial downturns, or around major regulatory changes. This trend is consistent across several key—and commonly used—measures, such as financial report file size, the ‘Fog’ index and the ‘Bog’ index. While each readability measure has caveats, together they create a mosaic of worsening financial report readability.
