Corporate Social Responsibility and Financial Statements Readability

In the framework of financial reporting quality, disclosure complexity is one of the most important issues to deal with. An important aspect of disclosure complexity is financial statements readability. Researches show that managers try to protect interests of stakeholders as well as interests of themselves by manipulating financial reporting and complicating financial statements. The purpose of this study is to examine the relation between corporate social responsibility and annual reports readability. In order to measure social responsibility, six dimensions of environmental issues, products and services, human resources, customers, social responsibilities, and energy are used, and a logarithm of total points is applied to measure social responsibility points. Also, to measure annual reports readability, the study uses the Fog index which is a combination of the words number in each sentence and the percentage of complicated terms. The research sample consists of 60 firms listed in Tehran Stock Exchange from 2012 to 2017 with 350 observation and the research hypotheses are tested using multivariate regression method. Findings indicate that there is a significant positive relation between corporate social responsibility and financial statement readability, thus, any increase of corporate social responsibility results in an increase of Fog index and decrease of financial statements readability.