Corporate report obfuscation: artefact or phenomenon?

Obfuscation is a type of writing that obscures the intended message. The presence of obfuscation is investigated in annual and interim reports and prospectuses, and is defined as the simultaneous use of writing with (a) low reading ease and (b) high readability variability. This is a new and more rigorous approach to the detection of obfuscation. This article offers one of three alternative explanations. Either management endorses the use of such a writing technique to permit deliberately a certain level of opacity from period to period so as to lessen investor anxiety about organizational impacts from environmental changes, or it seeks in some way to mislead by misrepresenting or concealing unpleasant facts; finally, obfuscation may occur because different people write different sections of corporate reports, or even different sections of one part of a report. There may of course be a mix of these explanations. The study examined external reporting documents of 60 Hong Kong public companies, and found reading ease to be difficult and variability to be pervasive. The study sought associations between obfuscation and corporate profitability, age, complexity and location of hardest to read passages. Management should note that obfuscation does occur in corporate communications, and that steps should be taken to eliminate or minimize any unintended writing of this nature.