An Empirical Study On The Impact Of Annual Reports Readability On The Market Reaction

The annual report content of the listed company can be divided into financial information and non-financial information.The digital data in the financial statements form the main body of financial information,which has long been regarded as the core of the financial report.Investors are almost entirely dependent on the accounting statements to understand the assets and profitability of the enterprises.In order to protect the interests of investors,especially the interests of small and medium investors,corporate financial information,whether in the formation process or in the disclosure process,are subject to strict control,standardization,digital financial information is a significant feature.In contrast,non-financial information on the use of more forms of expression,usually regarded as the interpretation and explanation of the accounting statements,investors only use it as a reference to the decision-making.Therefore,non-financial information in the disclosure of the content and form are more flexible,do not need to undergo an audit check.However,this situation has changed in recent years,the proportion of digital information in the company's financial report is gradually reduced,the proportion of non-financial information is growing,and in any financial report non-financial information is far away more than half of which the information content has increased significantly,the decisionmaking usefulness has continued to increase,has attracted the interest of the annual readers,even the experienced annual report users also recognize the importance of the annual report.This dissertation selects the annual reports of 479 listed companies after merge data from Shenzhen stock market B share of 2003-2016 and uses many indexes company to measure the readability of annual reports.This dissertation studies the readability of the financial reports of Shenzhen B-share of listed companies using statistical and text analysis software in an attempt to find out the impact of the readability on market response.From the technical point of view,the market reaction'raw data and annual reports contents has been acquiring from the "CSMAR and CNINFO".Moreover,the relevant literature and empirical research methods have been carefully studied on the related phenomena.More specifically,the effect of reports readability on market reaction.This work is divided into seven parts;the first part of the introduction discusses the research background,research significance and research framework,the second and the third part reviews the literature of readability of annual report and market reactions factors and also studies the features of readability and statistics method and try to count and short the sample charts and trends.The fourth,fifth and sixth parts discuss the empirical study and analysis the results of this study.The last part of the thesis put forward corresponding summary and suggestions to improve the writing quality of annual report.The findings show the impact of the annual report readability on the reaction of the Chinese financial market through our empirical results on corporate performance,stock returns,trade volume and the cost of equity capital.The low readability is a negatively significantly affect corporate performance,stock returns and trading volume,whereas a more complex annual report(low readability)significantly increase cost of equity capital.Perhaps the most prominent of these results,which is different with many researchers after doing the textual analysis and the a test that indicating that the length of the report adversely affect the performance of companies directly,which creates a negative reaction to the financial market,but in turn may lead to strengthening the ability of investors who do not have Adequate knowledge especially with a high proportion of difficult words or professional words in the field of accounting and financial.Low of the readability the lower future returns and a more negative bias for Chinese equities as well as corporate performance and does not allow to improve the poor performance firms.The results are consistent with the expectations that the readability of the information in the annual reports affects the stock returns in next years.