ARE DISCLOSURES READABLE? : AN EMPIRICAL TEST

A major goal of federal disclosure laws is to ensure that precontractual disclosure documents are readable, i.e., easily understood by the average disclosee. Focusing as a case study on 523 U.S. disclosures in the franchise industry, this Article empirically shows that disclosures are normally unreadable. Using the Gunning Fog Index linguistics readability tool, this Article indicates, inter alia, that prospective franchisees need, on average, more than twenty years of education to understand a franchise disclosure document on the first reading. This result undermines the readability goal of the federal franchise disclosure law since the highest level of education that most franchisees have completed is community college, which is normally the equivalent of fourteen years of education. The results of our study also show a significant positive relationship between the franchises’ size and age and the readability of their disclosures.

The empirical results of this study have significant implications, not only for the franchise industry, but also for the institutional design and enforcement of federal disclosure regulations.