Association Between Financial Constraints and Crises on the Readability and Tone of Explanatory Notes of Brazilian Companies Listed on B3
Name: JORDANA PEREIRA MUNIZ
Publication date: 18/03/2025
Examining board:
Name |
Role |
|---|---|
| DONIZETE REINA | Presidente |
| JORGE DE SOUZA BISPO | Examinador Externo |
| LUIZ CLAUDIO LOUZADA | Examinador Interno |
Summary: This study analyzes the influence of financial constraints and periods of crisis on the readability
and tone of the words used in the explanatory notes of Brazilian companies listed on the B3
stock exchange. Grounded in Disclosure Theory, the research examines how external
(economic crises) and internal (financial constraints) factors affect the quality of financial
information. A quantitative analysis was conducted using 8,363 observations from 2014 to
2023, covering the 2014 economic crisis, the COVID-19 pandemic in 2020, and the Americanas
crisis in 2023. In the main analysis, readability was measured using the Flesch Reading Ease,
while the tone of the words was identified through a sentiment dictionary adapted by Cavalheiro
et al. (2021). Financial constraints were captured using the KZ index (Kaplan & Zingales,
1997), and the effects were evaluated through panel data regressions. The results indicate that
crisis periods significantly reduced readability, making reports more complex, particularly in
the Communication and Consumer Cyclical sectors. Additionally, financially constrained firms
exhibited lower readability and a more pessimistic tone, suggesting greater caution in financial
reporting. However, the interaction between crisis and financial constraints did not impact
readability but influenced the tone, making it more optimistic, possibly as a strategy to manage
market perceptions. Additional analysis, using Wilcoxon and Kruskal-Wallis tests, confirmed
that crises and financial constraints independently affect readability, while their interaction
influences the tone of the disclosures. The robustness of these findings was validated by
alternative readability metrics, such as Flesch-Kincaid Grade Level and Gunning Fog Index,
and by reassessing financial constraints using the SA index (Hadlock & Pierce, 2010). The
findings emphasize that macroeconomic crises and financial constraints affect corporate
transparency, reinforcing the need for stricter regulations to ensure the clarity of financial
reports, particularly during crises. These results contribute to the literature on financial
disclosure quality, demonstrating that economic conditions and financial constraints influence
corporate transparency. From a practical perspective, the findings suggest that investors and
analysts should consider readability and tone in explanatory notes as potential indicators of
financial constraints and perception management strategies.
