Annual report readability and stock liquidity. Issue 2 (5th March 2019)

• Record Type: Journal Article
• Authors: Boubaker, Sabri; Gounopoulos, Dimitrios; Rjiba, Hatem
• Other Names: Chatziantoniou Ioannis guestEditor.; Hasan Iftekhar guestEditor.; Pasiouras Fotios guestEditor.
• Is Part Of: Financial markets, institutions and instruments. Volume 28:Issue 2(2019)
• Page Start: 159
• Page End: 186
• Publication Date: 2019-03-05
• Subjects: annual report readability -- information asymmetry -- stock liquidity -- textual complexity -- G11 -- G12 -- M48; Financial services industry -- Periodicals; Securities industry -- Periodicals; Financial instruments -- Periodicals; Financial institutions -- Periodicals; 332.105
• DOI: 10.1111/fmii.12110
• Languages: English
• ISSNs: 0963-8008

Abstract

Abstract: 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.