The Effect of Annual Report Readability on Analyst Following and the Properties of Their Earnings Forecasts

• 成果类型: Article
• 署名作者: Lehavy, Reuven; Li, Feng; Merkley, Kenneth
• 署名单位: University of Michigan System; University of Michigan
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr.00000043
• 发表日期: 2011
• 页码: 1087-1115
• 关键词: medicare enrollees; health literacy; disclosure; valuation; management; accuracy; complexity; investors; matter; ACT

摘要

This study examines the effect of the readability of firms' written communication on the behavior of sell-side financial analysts. Using a measure of the readability of corporate 10-K filings, we document that analyst following, the amount of effort incurred to generate their reports, and the informativeness of their reports are greater for firms with less readable 10-Ks. Additionally, we find that less readable 10-Ks are associated with greater dispersion, lower accuracy, and greater overall uncertainty in analyst earnings forecasts. Overall, our results are consistent with the prediction of an increasing demand for analyst services for firms with less readable communication and a greater collective effort by analysts for firms with less readable disclosures. Our results contribute to the understanding of the role of analysts as information intermediaries for investors and the effect of the complexity of written financial communication on the usefulness of this information.