Environmental, social and governance reporting, audit committee characteristics and readability of annual reports: evidence from an African emerging economy

This is the authors' abstract. We don't add key points for this paper.

Purpose The study examined the moderating effect of audit committee characteristics in the nexus between environmental, social and governance (ESG) reporting and annual report readability. Design/methodology/approach The study used archival data from the audited annual reports of 30 firms listed on the Ghana Stock Exchange, spanning the period 2000–2023. A fixed-effects estimator was employed, helping to address the potential issue of unobserved firm-specific heterogeneity in the dataset. However, system GMM was also used for robustness testing and to minimise issues that come with endogeneity as far as econometric estimates are concerned. Findings The result revealed that although ESG reporting could impair the readability of annual reports, in the presence of audit committee characteristics, namely audit committee size, audit committee gender diversity and audit committee meetings, ESG reporting could enhance readability (i.e. understandability) of annual reports. Practical implications While firms may want to ensure accountability and transparency to their numerous stakeholders by way of ESG reporting, it is imperative they do so, having an effective audit committee in place. This can be achieved by way of ensuring a larger audit committee that is gender diversified, but must be cautious in terms of engaging in more meetings. Originality/value The study adds to extant literature on ESG reporting and governance by showing that while ESG reporting may be important, it may impair the readability of annual reports, but the audit committee and its associated features, particularly gender diversity and bigger-size audit committee, can ensure more readable annual reports even in the presence of increasing ESG reporting.