As digital transformation accelerates across industries, a paradox is emerging in the realm of financial reporting: despite advances in technology and communication, financial disclosures are becoming increasingly complex and difficult to understand. This growing opacity stands in stark contrast to the general trend toward clearer, simpler communication seen in journalism, literature, and academia. A recent comprehensive study spanning nearly three decades reveals that while information becomes more abundant and accessible in digital formats, financial reports have paradoxically worsened in readability, posing significant challenges for investors and market participants alike.
The research, covering the period from the mid-1990s through 2022, captures the era defined by rapid digitalization, which should theoretically streamline the dissemination and comprehension of information. Instead, financial reports have ballooned in length and linguistic complexity, undermining their core purpose: to transparently convey essential company information in a manner accessible to a broad audience. Whereas the average readability of general texts has improved, financial reports today demand educational levels equivalent to approximately 20 years of schooling—up from around 17.6 years three decades earlier. This means comprehension increasingly requires specialized expertise, moving financial disclosures into the exclusive realm of trained professionals.
This escalating complexity in financial language, often quantified by the Fog Index—an established metric for readability assessment—exerts a heavy cognitive load on readers. Cognitive Load Theory, which examines how information processing capacity impacts understanding and decision-making, provides a framework to understand the consequences of this trend. When faced with highly complex texts, individuals are more prone to shortcutting cognitive effort by relying on heuristics, narratives, or biased cues rather than thorough analysis. For investors, this may translate into poor decision-making driven by sentiment, anchoring effects, or vulnerability to information asymmetry.
The phenomenon, termed ‘Lost in the FOG’ by the study’s authors in reference to the Fog Index metric, indicates that rather than enabling swift and accurate market responses, current financial reporting actually impedes them. The increased difficulty of parsing disclosures contributes to delayed price adjustments in markets and elevated risk premiums. Investors grappling with opaque information face increased uncertainty and may demand compensation accordingly, impacting capital allocation and market efficiency. This underscores the systemic risks introduced by declining transparency.
The trend toward complexity in financial disclosures clashes with fundamental principles of fairness and transparency central to efficient financial markets. If comprehensibility is increasingly restricted to an elite subset of investors equipped with advanced training, the playing field narrows, and retail investors or less specialized stakeholders are marginalized. This encroachment threatens market inclusivity and raises critical questions about the regulatory environment governing financial communication. Existing frameworks appear insufficient to enforce readability standards or mandate clearer writing in financial disclosures.
Notably, regulatory figures and industry experts, including luminaries such as Warren Buffett and former SEC chairs Arthur Levitt and Christopher Cox, have acknowledged the challenges posed by dense and jargon-laden financial documents. However, enforcement mechanisms lag behind acknowledgments, allowing complexity to proliferate unchecked. Without concerted regulatory intervention, the status quo risks fracturing investor confidence and diminishing market participation from the broader public, further concentrating knowledge asymmetries.
To counteract this progression, the study advocates for the establishment and enforcement of standardized readability metrics in financial reporting. The authors have made available a dataset and open-sourced algorithms to facilitate such efforts. Transparent, quantitative readability indices integrated into regulatory standards could serve as checkpoints to ensure that disclosures fulfill their role in informing diverse investor populations adequately. Advanced language models, like BloombergGPT, offer promising support by enabling nuanced analysis of textual complexity and assisting in crafting clearer reports.
Future research directions outlined by the team emphasize leveraging state-of-the-art Natural Language Processing (NLP) and Natural Language Understanding (NLU) methods, particularly transformer-based architectures such as BERT and related models. Unlike traditional readability measures reliant on surface-level text features, these methods analyze semantic context and syntactic structures more deeply, providing richer insights into comprehension hurdles. Training these models on extensive, domain-specific corpora enhances their relevance and accuracy for financial text analysis.
These developments are vital as financial communication ecosystems evolve in tandem with artificial intelligence and digital technologies. Ensuring that advanced AI tools contribute constructively to transparency rather than complicate understanding will be central to maintaining market integrity. The proliferation of generative AI applications heightens both information availability and complexity, making improved readability standards and analytical tools more necessary than ever.
In practical terms, stakeholders should consider readability not as a peripheral concern but as core to the financial reporting function. Clear, concise disclosures enable better investor analysis, reduce reliance on simplified heuristics, and promote efficient pricing dynamics. This shift aligns with broader efforts to democratize access to financial knowledge and foster more equitable market participation.
In conclusion, this study sheds light on an alarming divergence in the trajectory of financial reporting compared to other fields. As textual complexity increases, a growing cognitive barrier emerges for investors, regulators, and the public. Coordinated, multidisciplinary initiatives integrating linguistic analytics, regulatory frameworks, and AI capabilities are urgently needed to reverse this trend and reinstate financial disclosures as a robust pillar of market transparency. Only through such holistic efforts can financial information truly fulfill its empowering mission for a broad and diverse investor base in the digital age.
Subject of Research:
Growing complexity and declining readability in financial reporting text from the mid-1990s to 2022, analyzed in the context of digital information proliferation and cognitive impacts on investors.
Article Title:
Lost in the fog: growing complexity in financial reporting—a comparative study
Article References:
Lesmy, D., Muchnik, L. & Mugerman, Y. Lost in the fog: growing complexity in financial reporting—a comparative study. Humanit Soc Sci Commun 12, 1813 (2025). https://doi.org/10.1057/s41599-025-06094-y
Image Credits: AI Generated
DOI:
https://doi.org/10.1057/s41599-025-06094-y
