Financial report readability and stock return synchronicity

In this study, we investigate the impact of firm-specific information-processing cost, proxied by annual report readability, on investors' firm-specific information usage, proxied by firm stock return synchronicity. We expect that more readable financial reports would reduce firm-specific infor...

Full description

Saved in:
Bibliographic Details
Main Authors: BAI, Xuelian, DONG, Yi, HU, Nan
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2019
Subjects:
Online Access:https://ink.library.smu.edu.sg/sis_research/8044
Tags: Add Tag
No Tags, Be the first to tag this record!
Institution: Singapore Management University
Language: English
id sg-smu-ink.sis_research-9047
record_format dspace
spelling sg-smu-ink.sis_research-90472023-08-11T03:18:03Z Financial report readability and stock return synchronicity BAI, Xuelian DONG, Yi HU, Nan In this study, we investigate the impact of firm-specific information-processing cost, proxied by annual report readability, on investors' firm-specific information usage, proxied by firm stock return synchronicity. We expect that more readable financial reports would reduce firm-specific information-processing costs and, therefore, reduce stock return synchronicity. We propose a new readability measure and demonstrate that, as the readability of annual reports increases, the firm's future stock return synchronicity decreases. Furthermore, the effect of report readability on stock return synchronicity is more concentrated on firms with low analyst coverage or institutional ownership. Finally, the impact of readability on stock synchronicity is more concentrated on firms with high information asymmetry, such as firms small in size, with high R&D spending, or with high growth. The benefit of incorporating more firm-specific information (e.g. from a more readable financial report) into stock price is consistent with the SECs continuous attempt to make public company reports easier to comprehend. Managers of publicly listed firms should be aware of such a benefit and make their financial reports more readable by incorporating more tables, especially when their firms face high information asymmetry. 2019-01-20T08:00:00Z text https://ink.library.smu.edu.sg/sis_research/8044 info:doi/10.1080/00036846.2018.1495824 Research Collection School Of Computing and Information Systems eng Institutional Knowledge at Singapore Management University Text mining readability stock return synchronicity information asymmetry Databases and Information Systems Finance and Financial Management Numerical Analysis and Scientific Computing Portfolio and Security Analysis
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Text mining
readability
stock return synchronicity
information asymmetry
Databases and Information Systems
Finance and Financial Management
Numerical Analysis and Scientific Computing
Portfolio and Security Analysis
spellingShingle Text mining
readability
stock return synchronicity
information asymmetry
Databases and Information Systems
Finance and Financial Management
Numerical Analysis and Scientific Computing
Portfolio and Security Analysis
BAI, Xuelian
DONG, Yi
HU, Nan
Financial report readability and stock return synchronicity
description In this study, we investigate the impact of firm-specific information-processing cost, proxied by annual report readability, on investors' firm-specific information usage, proxied by firm stock return synchronicity. We expect that more readable financial reports would reduce firm-specific information-processing costs and, therefore, reduce stock return synchronicity. We propose a new readability measure and demonstrate that, as the readability of annual reports increases, the firm's future stock return synchronicity decreases. Furthermore, the effect of report readability on stock return synchronicity is more concentrated on firms with low analyst coverage or institutional ownership. Finally, the impact of readability on stock synchronicity is more concentrated on firms with high information asymmetry, such as firms small in size, with high R&D spending, or with high growth. The benefit of incorporating more firm-specific information (e.g. from a more readable financial report) into stock price is consistent with the SECs continuous attempt to make public company reports easier to comprehend. Managers of publicly listed firms should be aware of such a benefit and make their financial reports more readable by incorporating more tables, especially when their firms face high information asymmetry.
format text
author BAI, Xuelian
DONG, Yi
HU, Nan
author_facet BAI, Xuelian
DONG, Yi
HU, Nan
author_sort BAI, Xuelian
title Financial report readability and stock return synchronicity
title_short Financial report readability and stock return synchronicity
title_full Financial report readability and stock return synchronicity
title_fullStr Financial report readability and stock return synchronicity
title_full_unstemmed Financial report readability and stock return synchronicity
title_sort financial report readability and stock return synchronicity
publisher Institutional Knowledge at Singapore Management University
publishDate 2019
url https://ink.library.smu.edu.sg/sis_research/8044
_version_ 1779156937219244032