CEO career horizons and readability of the notes to financial statements abstract

Purpose This study aims to investigate the association between chief executive officer (CEO) career horizons and the readability of notes to financial statements. This study posits that CEOs influence the presentation of financial information based on their career motivations, which evolve throughout their tenure. Design/methodology/approach The authors analyze a sample of the Top 500 ASX-listed firms from 2001 to 2015. They measure readability using the Flesch−Kincaid Grade Level and Disclosure Index, and categorize CEOs based on their career stage (early, mid or late). Regression analyses are conducted to examine the relationship between CEO age, career stage and readability. Findings The results reveal that readability of notes increases with CEO age for early- and mid-career CEOs but decreases for late-career CEOs approaching retirement. This suggests that older CEOs prioritize informative and transparent reporting, while those nearing retirement might engage in more opportunistic disclosure practices. Research limitations/implications Investors, analysts and auditors should consider CEO career stage when interpreting financial statements. More attention may be warranted for disclosures prepared by late-career CEOs, where opportunistic motives might be present. Regulatory authorities can also leverage these findings to enhance transparency and comparability in corporate reporting. Originality/value This study offers a unique perspective on how CEO career horizons impact financial reporting practices. By demonstrating the link between CEO age, career stage and readability, the findings provide valuable insights for various stakeholders in the financial market.