Clear or confusing? How financial report readability and tone are associated with dividend payouts in Indian corporations

This study investigates the association between the readability and tonal quality of annual reports, and corporate dividend payout policies in the Indian context, using a comprehensive dataset from 2012 to 2022. Applying detailed analysis and sophisticated statistical models, including Tobit and METobit regression techniques, to 10,085 firm-year observations, we ensured the robustness and reliability of the findings. The results reveal a significant association between the readability of corporate annual reports and corporate payouts. Specifically, firms whose annual reports are characterized by low readability tend to pay out smaller dividends. Moreover, if the narrative tone in annual reports leans towards negativity, litigiousness, uncertainty, or weak modal case, there is a significant negative association with the size and frequency of dividend payouts. The results underscore that the presence or absence of clear, comprehensible financial reporting with a positive tone is aligned with firms’ corporate payout policies. The findings add to the expanding body of research on the textual characteristics of financial disclosure and their corresponding economic consequences, confirming the necessity for transparent and readable financial reporting. The findings of this study hold implications for investors, corporate managers, and policymakers, who need to understand the strategic importance of clarity and tone in financial communications.