Evidencing information overload in the annual reports and their impact on the financial performance of the listed manufacturing companies in Sri Lanka

Abstract

As the world indulged in the information era, perceiving a clear understanding of the role of information in the business context became vital. Therefore, this study aims to examine whether the information disclosures in the annual reports of the listed manufacturing companies in Sri Lanka are overloaded enough to impact financial performance. A total of 270 firm-year observations were utilized in this research, covering ten years from 2012 to 2022 for twenty-seven companies. Separate panel regression models were developed to reveal the inverted U-shaped relationship between every information attribute and financial performance. Information attributes comprised the quantity of information in the annual reports and the quality of the information, which was measured by several readability scores. The study's outcome reveals that an increase in information—both in terms of quantity and quality—in the annual reports initially produces a positive association with financial performance. However, after a certain level, further increases in that information establish a negative relationship. This leads to an inverted U-shaped curved relationship between the information and the financial outcome. The findings of this study draw the attention of annual report preparers, policymakers, and standard setters towards reconsidering the construction mechanisms of annual reports in this cluttered information era. Since this is an original study carried out in Sri Lanka, the outcome provides significant insights to organizations in designing the information content and quality in annual reports. Preparers could create a mechanism to identify whether including particular information in the annual reports is coherent with the decision-making process in advance, thereby avoiding information overload for the stakeholders.