Accounting Statement Footnotes Contextual Association with Firm Financial Characteristics in the Oil and Gas Industry

Abstract

This study investigates the association of the annual report readability with the firm’s weighted average cost of capital (WACC), which is a key ratio used in readers’ decision-making and firm valuations. This study extends readability research in financial ratio, footnote, and management discussion and analysis (MD&A) areas. Findings indicate that WACC associates with the accounting readability of MD&A and footnotes. The study focuses upon the oil and gas industry in order to analyze “successful efforts” versus “full cost” accounting methods. The study finds the annual report readability is significant in regards to accounting choice of “successful efforts” versus “full cost”.