Busy CEO and financial statement footnotes readability: evidence from Indonesia

Abstract

Purpose

This study aims to investigate the correlation between a CEO's business background and the readability of financial statement footnotes in Indonesia.

Design/methodology/approach

This study utilizes a sample period spanning from 2010 to 2018 and employs various statistical tests, including Propensity Score Matching (PSM), Coarsened Exact Matching (CEM) and the Heckman Model, to demonstrate that it can address issues of causality and endogeneity without introducing bias.

Findings

As a result, the findings of this study indicate a statistically significant negative relationship between CEOs with busy schedules and the readability of financial statement footnotes. This suggests that companies led by busy CEOs are more likely to have financial statement footnotes that are easier to read.

Research limitations/implications

These findings hold significance for clarifying research related to the challenges of contextual analysis in financial statement footnotes, which are distributed by companies on a sentence-by-sentence basis.

Practical implications

The practical implications of the findings pertain to actionable steps that management can undertake and also offer regulators opportunities to monitor the potential for standard setting.

Originality/value

Based on the results presented, the authors are optimistic that the findings will pave the way for broader research on the impact of a busy CEO, encompassing not only financial aspects but also non-financial dimensions. The growing popularity of readability is driven by the proliferation of textual reports that pose challenges in analysis and raise numerous inquiries.