Corporate Governance and Obfuscation in Chairmen’s Letters: The Case of MENA Banks

The readability (RDB) of annual reports (ARs) plays a crucial role in determining the effectiveness of disclosure of information to interested parties, particularly investors. Given that investors rely on the financial information provided in ARs, the chairman’s letter serves as a key communication tool and is the most extensively read section of the report. Consequently, companies are under pressure to provide understandable ARs that can be easily interpreted by investors. Nevertheless, managers sometimes obscure such disclosures in an attempt to bury negative information and hide their own behavior. Drawing from the “managerial obfuscation hypothesis”, this study investigated how the corporate governance (CG) structures affect the RDB of ARs for a sample of 95 banks across seven countries in the MENA region from 2018 to 2022. The findings revealed that board size, frequency of board meetings, and ownership concentration significantly affected the RDB of ARs. Additionally, board independence and gender diversity had a significant negative effect on ARs’ RDB. Conversely, the study found that the presence of role duality within the board had an insignificant effect on ARs’ RDB. As a result, this study recommends enhancing CG structures to enhance the clarity of banks’ reports and boost investor trust.