The Effect Of Textual Information Disclosure Quality On The Earnings Response Coefficient

Information disclosure plays important role in both protecting the benefits of investors and improving the information efficient.Existing literatures show that earning information could influence the investment decisions of investor and is useful for investors.As another important source of information,textual information can deliver large number of operating and developing information of companies and explain the earning information.However,little research focus on the role of textual information on supplementing the earning information.Based on the background,this paper use sample based on listed firms during 2008-2015 and construct the specificity index and readability index of the Management Discussion and Analysis section in the annual report.We try to investigate whether the quality of textual information disclosure would influence the ERC of the company.We find that the specificity and readability index of the MD&A section is positively and significantly associated with the ERC.Moreover,this paper discusses whether the information intermediate and institutional investor would influence the relationship between the quality of textual information disclosure and ERC.The finding is that the positive relationship only exits when analyst coverage or institutional investor is higher,suggesting that the information intermediate and institutional investors could help understand textual information better.In the further analysis,this paper investigates whether the textual information demanding would affect the relationship between the textual information quality and ERC.We find that only when the unexpected earnings are negative or the earnings information quality is worse,the demanding of textual information is higher,and then the quality of textual information is positively and significantly associated with the ERC.This research expands the literatures of the measurements of textual characteristic,the consequences of textual information disclosure and the determinants of earnings response coefficients.Also,our paper is beneficial to help companies realize the importance of textual information,improve the supervision of textual information disclosure and help investors understand the textual information in annual report.