Analyst Report Readability
Gus De Franco
Tulane University - A.B. Freeman School of Business
University of Toronto - Rotman School of Management
University of Toronto - Rotman School of Management; University of Toronto at Mississauga
University of Texas at Dallas - School of Management
May 10, 2013
Rotman School of Management Working Paper No. 1873424
Using an extensive database of 356,463 sell-side equity analysts’ reports from 2002 to 2009, this study is one of the first to analyze the readability of analysts’ reports. We first examine the determinants of variations in analyst report readability. Using several proxies for ability, we show that reports are more readable when issued by analysts with higher ability. Second, we test the relation between analysts’ report readability and stock trading volume reactions. We find that trading volume reactions increase with the readability of analysts’ text, consistent with theoretical models that predict that more precise information (and hence more informative signals) results in investors’ initiating trades. These results support the view that the readability of analysts’ reports is important to analysts and capital market participants.
Number of Pages in PDF File: 49
Keywords: Analyst reports, readability, volume reactions, analyst ability
JEL Classification: G20, G24, G30, M10, M40
Date posted: June 28, 2011 ; Last revised: May 11, 2013
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