Annual report readability and stock liquidity

We examine the effect of annual report textual complexity on firms’ stock liquidity. Using techniques from computational linguistics, we predict and find that less readable filings are associated with lower stock liquidity. Our study provides evidence that difficult‐to‐read annual reports hinder inv...

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Bibliographic Details
Published inFinancial markets, institutions & instruments Vol. 28; no. 2; pp. 159 - 186
Main Authors Boubaker, Sabri, Gounopoulos, Dimitrios, Rjiba, Hatem
Format Journal Article
LanguageEnglish
Published Cambridge Blackwell Publishing Ltd 01.05.2019
Subjects
annual report readability
Annual reports
G11
G12
information asymmetry
Linguistics
Liquidity
M48
Readability
stock liquidity
Stocks
textual complexity
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Summary:We examine the effect of annual report textual complexity on firms’ stock liquidity. Using techniques from computational linguistics, we predict and find that less readable filings are associated with lower stock liquidity. Our study provides evidence that difficult‐to‐read annual reports hinder investors’ ability to process and analyze information contained in corporate annual reports, reducing thereby their willingness to trade which decreases stock liquidity. Our findings are robust to a battery of sensitivity tests, including endogeneity, use of alternative estimation techniques, and use of alternative liquidity and readability proxies.
Bibliography:This article is published with the permission of the Controller of HMSO and the Queen's Printer for Scotland.
ISSN:0963-8008
1468-0416
DOI:10.1111/fmii.12110