Complexity of annual report and management self-interest: empirical evidence from Chinese listed firms

WANG Kemin1 WANG Huajie2 LI Dongdong1 DAI Xingyun3

(1.School of Management, Fudan University)
(2.School of Accounting, Shanghai Lixin University of Accounting and Finance)
(3.China Financial Futures Exchange)

【Abstract】We investigate the manager’s self-interest narrative disclosure strategy of annual reports. We find that compared with firms with good performance, firms with bad performance have more complicated annual reports. The negative relation is stronger among firms with high earnings management constraint, high management shareholding, CEO duality or low litigation risk. Moreover, the complexity of annual report is positively related to management abnormal compensation. Furthermore, compared with firms with good performance, the short-run and long-run market return to complexity is more positive for firms with bad performance. The above evidence is consistent with the conjecture that managers will manipulate the complexity of annual reports to hide adverse information to get more abnormal compensation and affect market valuation. The manipulation of annual report complexity has a substitution role to the manipulation of number information; and managers’ self-interest, internal and external governance will also affect the annual report complexity. For the first time through large sample analysis of Chinese annual report, we provide empirical evidences for the study in complexity of narrative information, validate the substitution effect between number and narrative information manipulation, and expand the study of opportunistic disclosure. Besides, findings of this paper have important implications for the construction of the financial narrative disclosure system.

【Keywords】 complexity of narrative information; disclosure strategy; manager’s self-interest; annual report;


【Funds】 The National Natural Science Foundation of China (71272072, 71572042)

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This Article


CN: 11-1235/F

Vol 34, No. 12, Pages 120-132+194

December 2018


Article Outline


  • 1 Introduction
  • 2 Related literature and theoretical logic
  • 3 Empirical analysis
  • 4 Research conclusion and policy implication
  • Appendix
  • Footnote