Does The Poor Readability Of Listed Companies' MD&A Mean Higher Stock Price Crash Risks?

The risk of stock price crash refers to the probability that the stock price will fall sharply.Compared with the capital markets of developed countries,the phenomenon of stock price crash in China's capital market is more common.The stock price crash may cause mismatch of economic resources and endanger the smooth operation and value discovery of the capital market.Therefore,the transmission mechanism and influencing factors of the stock price crash risk have aroused widespread concern in the academic and practical circles.The management of the listed company will conduct internal and external environmental factors such as the business performance,the completion of the strategic plan,the industry environment in which the enterprise is located,the future development strategy and the risks faced in the management discussion and analysis(MD&A)part of the annual report.From the perspective of information asymmetry between the information releaser and the recipient,the causes of the stock price crash risk are discussed.The management is unwilling to disclose the negative news of the company in time for their own interests.When the negative news accumulates to a certain extent and suddenly disclosure,it will triggered the stock price crash.Based on this theory,this paper studies the impact of MD&A readability on stock price crash risk.This paper combines the readability research methods in the field of financial text analysis,and uses the four indexes of length,average sentence length,professional vocabulary density and passive sentence to generate the MD&A readability index of the Chinese listed company's annual report.Based on this,this paper explores the relationship between the readability of listed company's MD&A and the risk of future stock price crash from theoretical analysis and statistical evidence.This paper analyzes the transmission mechanism of the risk of the company's stock price crash caused by the poor readability of MD&A text from the information asymmetry theory and agency theory.An empirical test was conducted to verify that the poor readability of MD&A text caused the asymmetry of the company's information to increase,and to verify that the poor readability of MD& A text caused the company's stock market crash risk.This paper takes the listed companies of Shanghai and Shenzhen A-Shares from 2007 to 2017 as the research object,and examines the impact of MD&A readability on the stock price crash risk through empirical research.Considering the impact of performance and performance sustainability on the company's disclosure behavior,this paper studies the impact of MD&A readability on the stock price crash risk under different performance.Considering the strength of management's hidden motivation for bad news is different under different properties,this paper further studies the influence of MD&A readability on the stock price crash risk under the different property rights by dividing the sample into the state-owned enterprise group and the private enterprise group.The empirical regression results of this paper show that:1.The poor readability of management discussion and analysis lead to an increase risk in the company's stock price crash.2.The poorly readable MD&A of the company whose performance has deteriorated or changed from good to bad leads to a higher risk of the company's stock price crash in the future.There is no significant relationship between the readability of the company's MD&A and the risk of stock price crash if the performance is consistently good or the performance changes from bad to good.3.The poor readability of private companies' MD&A leads to a higher risk of the company's future stock price crash.However,the readability of state-owned enterprises MD&A is not significantly related to the risk of the company's future stock price crash.Finally,combining the empirical conclusions,this paper puts forward policy suggestions such as improving the readability of MD& A disclosures,improving the MD &A disclosure system,and increasing the auditing requirements of MD&A.