An implicit premise of regulators and much empirical research is that financial reporting readability (readability) substantially reflects management choices. To investigate this issue, we decompose readability into its discretionary and innate components. To validate this decomposition, we examine whether these two components have different uncertainty effects. Our empirical findings show that readability is primarily the result of firm fundamentals rather than managerial choices. Furthermore, consistent with expectation, discretionary readability has a weaker uncertainty effect than innate readability. The findings are robust to a variety of additional tests. This study contributes to regulators to better assess readability and to empirical literature to construct more accurate tests.

Purpose: Chief executive officer (CEO) ability may have an effect on various corporate reporting decisions, and consequently, the CEO ability is subject to scrutiny by regulatory reviewers. However, theoretical literature provides mixed evidence on how the CEO ability affects the regulatory review risk. Thus, this study aims to empirically examine the effect of CEO ability on regulatory review risk. Design/methodology/approach: To measure CEO ability, this study uses the CEO ability-score developed by Demerjian et al. (2012). Further, to measure regulatory review risk, the study uses the probability of receiving a comment letter from the Securities and Exchange Organization of Iran. Findings: This study finds that the relationship between CEO ability and regulatory review risk is generally negative and statistically significant but not economically significant, i.e. the relationship is very small. In this regard, the study shows that the relationship is negative and also statistically and economically significant for firms with low levels of agency conflicts and high levels of corporate governance quality; and is positive and also statistically and economically significant for firms with high levels of agency conflicts and low levels of corporate governance quality. In addition, while the study finds no evidence that the regulatory reviewers’ workload compression influences the general relationship between CEO ability and regulatory review risk, it documents that low (high) regulatory reviewers’ workload compression weakens (strengthens) both the relationships stated above. Originality/value: Collectively, the results suggest that the agency conflicts/corporate governance quality and regulatory reviewers’ workload compression are important factors in the analysis of the relationship between the CEO ability and regulatory review risk. The results offer insights into the opposing theoretical viewpoints about the relationship between CEO ability and regulatory review risk. Thus, the results will be of interest to boards of directors and other stakeholders involved in the regulatory review process.

Purpose: The regulatory review process imposes significant costs on companies. Therefore, managers try to find ways to avoid the regulatory review risk. The purpose of this paper is to investigate whether corporate reporting readability reduces the regulatory review risk.Design/methodology/approach: This study measures the corporate reporting readability using the Fog Index. It measures the regulatory review risk using the probability of receiving a comment letter from the Securities and Exchange Organization of Iran.Findings: The findings reveal that corporate reporting readability reduces the regulatory review risk, after controlling for the factors that affect the regulatory review risk.Originality/value: The current paper identifies an easy strategy for managers to mitigate one of the important risks faced by companies. Thus, the results will be of interest to managers, audit committees, and stakeholders involved in the regulatory review process.

Purpose: This study investigates the association between managerial ability and earnings quality in firms listed on the Iraq Stock Exchange and how the emergence of the Islamic State of Iraq and Syria (ISIS) influences the association.Design/methodology/approach: This study uses a sample of firms listed on the Iraq Stock Exchange over the period 2012–2018. Managerial ability is quantified using data envelopment analysis, and earnings quality is measured by earnings restatement, earnings persistence, accruals quality and earnings response coefficient. Panel regression analysis is used to examine the research hypotheses.Findings: The findings indicate that managerial ability positively affects earnings quality of Iraqi firms and that ISIS weakens the relationship between managerial ability and earnings quality. These findings are robust to the alternative measures of managerial ability, as well as to various approaches used to address endogeneity including propensity-score matching and a difference-in-differences analysis.Originality/value: This study provides insight into the impact of managerial ability on earnings quality in an under-studied emerging market. Furthermore, this study broadens the existing literature about the financial consequences of a modern terrorist group, ISIS.

Purpose: Prior studies provide mixed evidence on the association of board busyness and firm productivity. Thus, this paper empirically analyzes how board busyness affects firm productivity.Design/methodology/approach: To measure board busyness, this paper computes the percentage of directors on a board who sit on three or more boards. Furthermore, to calculate firm productivity, the paper employs data envelopment analysis.Findings: Findings demonstrate that the association of board busyness and firm productivity (association) is generally negative and statistically significant but economically insignificant. In this respect, the findings reveal that the association is negative (positive) and both statistically and economically significant for firms having higher monitoring (advising) needs. Moreover, the findings demonstrate that regulatory oversight (1) weakens the general negative association; (2) changes the direction of association from negative to positive, for firms having higher monitoring needs; and (3) does not influence the association, for firms having higher advising needs.Originality/value: Taken together, the findings indicate that the association of board busyness and firm productivity is conditional to monitoring/advising needs and regulatory oversight. As such, the findings enrich the current debates on the association. Furthermore, the findings offer novel perspectives to enrich the regulatory frameworks of countries which are constraining multiple directorships.