Annual Renort Readability And Stock Price Informativeness

Readability is the premise for investors to make investment decisions with accounting information.Supervisors in various countries have been working to promote concise disclosure.However,as an important disclosure document,the readability of annual report is not optimistic and shows a trend of worsening.In recent years,it has attracted the attention of the relevant regulatory authorities and academia.So,what kind of important economic consequences will the annual report readability of listed companies bring?This paper will conduct a systematic empirical analysis and test from the perspective of stock price informativeness.This paper is based on 13,402 firm-year observations of Chinese A-share listed companies from 2007 to 2015.The total pages,total words and total characters of the annual reports of listed companies are used as a measure of annual report readability,empirically testing the impact of annual report readability on their stock price informativeness.The result shows that:(1)The worse the annual report readability of listed companies,the lower the stock price informativeness,which means that the annual report with low readability level will hinder the stock price's ability to reflect the company's special information;(2)The text density of annual report will intensify the negative relationship between the length of annual report and the stock price informativeness,which indicates that the reading difficulty caused by overtyping further reduces the annual report readability;(3)The greater the proportion of financial reports in annual report,the weaker the negative impact of annual report length on stock price informativeness,and the greater the proportion of board of directors in annual report,the stronger the negative impact of annual report length on stock price informativeness,which shows that different components of the annual report have different effects on transmission of company-specific information;(4)Compared with non Big 4,the annual report readability audited by Big 4 has a weaker impact on stock price informativeness,indicating that the high-level audit quality of Big 4 can improve the efficiency of information transmission and weaken the effect of annual reports readability on stock price informativeness;(5)The higher proportion of institutional ownership,the weaker the readability of annual report will have on stock price informativeness,which indicates that institutional investors are one of the main users of annual report,whose professional abilities and long-term investment incentives greatly reduce the interference effect of readability in the information acquisition,thus alleviating the impact of annual report readability on stock price informativeness.The above conclusions are robust after controlling the problems of endogenous effect,measurement methods of major variables,etc.The conclusions of this paper show that annual report readability is an important factor affecting the stock price informativeness.The deteriorating readability of annual report reduces the specific information reflected on stock price and intensifies the phenomenon of "rising and falling together" in capital market,thus hindering the scientific allocation of limited funds.Therefore,the research in this paper not only enriches the literature of annual report readability and stock price informativeness,but also has important implications for improving efficiency of capital market.