RESEARCH ARTICLE Do socially responsible firms provide more readable disclosures in annual reports? Walid Ben‐Amar 1 | Ines Belgacem 2,3 1 CPA Canada Accounting and Governance Research Centre, Telfer School of Management, University of Ottawa, Canada 2 Imam Saud University College of Economics and Administrative Sciences, Saudi Arabia 3 IHEC – University of Sousse, Tunisia Correspondence Walid Ben‐Amar, CPA Canada Accounting and Governance Research Centre, Telfer School of Management, University of Ottawa, Canada Email: benamar@telfer.uottawa.ca Funding information CPA Canada Accounting and Governance Research Centre at the University of Ottawa Abstract This paper examines the relationship between the adoption of corporate social responsibility (CSR) practices and the syntactic complexity of the management's dis- cussion and analysis (MD&A) section of the annual report. Based on stakeholder and agency perspectives, we offer an empirical test of two competing hypotheses. First, we may expect socially responsible firms to provide transparent disclosures because this reflects a firm's commitment to high ethical standards. In contrast, the agency perspective predicts that managers engage in CSR for self‐interest purposes and that CSR‐oriented firms will be more likely to attempt to mislead stakeholders about the firm's actual performance through complex narrative disclosures. Based on a sample of large firms listed on the Toronto Stock Exchange, our results show a positive association between corporate social performance and the MD&A's textual complexity. Consistent with the agency perspective, our findings suggest that managers may engage in CSR opportunistically and use complex narrative disclosures in an impression management strategy. KEYWORDS agency theory, corporate social responsibility, disclosure, management's discussion and analysis, readability 1 | INTRODUCTION This paper focuses on the association between corporate social responsibility (CSR) and the overall complexity 1 of a firm's financial disclosures. We specifically examine whether firms committed to the social good (i.e. CSR‐oriented firms) provide more readable disclosures in the management's discussion and analysis (MD&A) section of their annual reports. Following previous research (Kim, Park, & Wier, 2012; Lee, 2017), we consider CSR‐oriented firms as those involved in voluntary corporate initiatives to meet ethical, social and environ- mental expectations of a wide range of stakeholders. The link between firm‐level CSR orientation and financial reporting quality has recently received wide attention both in the corporate world and in academic literature, as public companies are facing mounting pressure to dem- onstrate true commitment to ‘business ethics’ and corporate transpar- ency. As a result, an increasing number of companies around the world are devoting more attention to environmental and social issues in an era of rising concerns about global warming effects, bribery scandals and employment conditions in several countries. Prior academic literature has mostly focused on the effects of CSR orientation on firm performance (Margolis, Elfenbein, & Walsh, 2009; Orlitzky, Schmidt, & Rynes, 2003; Wang, Dou, & Jia, 2016), and little is known about the channels through which the adoption of CSR prac- tices enhance firm value. To further explore this issue, recent studies examined the association between the adoption of CSR practices and M&A performance (Deng, Kang, & Low, 2013), the design of exec- utive compensation packages (Cai, Liu, & Qian, 2009), financial policies (Cheng, Ioannou, & Serafeim, 2014), tax avoidance (Hoi, Wu, & Zhang, 2013) and financial reporting quality (Bozzolan, Fabrizi, Mallinand, & Michelon, 2015; Chih, Shen, & Kang, 2008; Kim et al., 2012). Our 1 Previous studies (Biddle et al., 2009; Lawrence, 2013; Lehavy et al., 2011; Li, 2008; Loughran & McDonald, 2016) assume that complex disclosures are less readable. Therefore, we use interchangeably the terms complexity and lack of readability or transparency of disclosures in the paper. Received: 23 January 2017 Revised: 29 December 2017 Accepted: 1 February 2018 DOI: 10.1002/csr.1517 Corp Soc Resp Env Ma. 2018;1–10. Copyright © 2018 John Wiley & Sons, Ltd and ERP Environment wileyonlinelibrary.com/journal/csr 1