Firm Performance and Readability of Sustainability Reports: A Research on Borsa İstanbul

Abstract

Purpose – In the study, it is aimed to empirically examine the relationship between readability and firm performance by measuring the readability of sustainability reports. Design/methodology/approach – The data of 162 companies/year between 2007-2020 of 20 companies that prepare sustainability reports and are traded in Borsa Istanbul were used. In the first part of the analysis, the readability of the board or CEO messages in the sustainability reports were analyzed with the Ateşman Readability Index. In the second part, whether there is an effect of company performance on readability values is examined by the panel data analysis method. Findings – As a result of the analysis, it has been determined that the readability values obtained with the Ateşman Readability Index are generally in the “Difficult” and “Very Difficult” categories in terms of readability of sustainability reports. In addition, a statistically significant relationship was found between financial performance indicators such as return on assets, return on equity, net profit margin, and readability values. Discussion – According to the analysis results, companies with good performance can prepare more readable reports, while companies with poor performance can present less readable reports by manipulating readability. Companies with poor performance avoid sharing transparent and accurate information about the company by manipulating readability. The positive relationship between firm performance and readability values reveals the reason for the decrease in the reliability of the stakeholders to the companies. This situation negatively affects the communication of companies with stakeholders. The results of the study show that the manipulation of readability values should be avoided.