An Introduction to Multilevel Analyses of Text Readability in Accounting and Finance

The present study introduces an assessment that includes multiple measures of language and discourse within the theoretical frameworks of comprehension in education and cognitive science. We utilize an automated textual assessment tool, Coh-Metrix, to analyze the Management Discussion and Analysis (MD&A) sections of annual reports to determine if significant differences in text readability are present between bankrupt and nonbankrupt companies. When applying Coh-Metrix indices, the MD&A sections of nonbankrupt companies appear to be easier to understand in terms of word concreteness, referential and deep (or causal) cohesion, and syntactic simplicity. More specifically, the MD&A sections of nonbankrupt companies contain more concrete wording, simpler syntactic structures, more word co-references to tie words and ideas, and more causal and intentional connectives to establish causal and logical relationships within the text.