It pays to write well

• 成果类型: Article
• 署名作者: Hwang, Byoung-Hyoun; Kim, Hugh Hoikwang
• 署名单位: Cornell University; Korea University; University of South Carolina System; University of South Carolina Columbia
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2017.01.006
• 发表日期: 2017
• 页码: 373-394
• 关键词: Disclosure characteristics; READABILITY; Firm value

摘要

We quantify the effects of easy-to-read disclosure documents on firm value by analyzing shareholder reports of closed-end investment companies in which the company's value can be estimated separately from the value of the company's underlying assets. Using a copy-editing software application that counts the pervasiveness of the most important 'writing faults' that make a document harder to read, our analysis provides evidence that issuing financial disclosure documents with low readability causes firms to trade at significant discounts relative to the value of their fundamentals. Our estimates suggest that a one-standard-deviation decrease in readability decreases firm value by a full 2.5%. In situations in which investors are more likely to rely on annual reports, the readability effect on firm value increases to 3.3%. (C) 2017 Elsevier B.V. All rights reserved.