An exploratory study of the understandability of listed companies’ annual reports

Abstract

In order to investigate the comprehension difficulties arising from the highly-specialized writing formats of listed companies  annual reports, this research evaluates investors  comprehension of annual reports and discusses ways to improve their understandability. The Cloze method is employed in this experimental study involving university students and preliminary testing. This research concludes that the understandability of Chinese listed companies  annual reports is close to the comprehension capacity of semi-professional investors but beyond non-professional investors. The extensive use of a great number of accounting jargons is likely the main cause for comprehensive difficulties for non-professionals.