What if there were no Annual Reports? Evidence from the Great Postal Strike of 1970
55 Pages Posted: 29 Apr 2022 Last revised: 23 Dec 2023
Date Written: December 20, 2023
Abstract
How important are annual reports to shareholders? Stock market reactions surrounding the annual report release cannot tell the whole story because annual reports are available to all investors for a given firm. It is also difficult to establish causality because annual reports are mandated for all firms and are not random. We exploit the 1970 U.S. postal strike that disrupted the distribution and availability of annual reports for a random sample of firms, allowing us to use a difference-in-differences design to evaluate the causal impact of annual reports. We find that stock trading volume declines by 31% for treatment firms that were unable to deliver the annual reports to their shareholders due to the strike. We posit and provide evidence that the decline is attributable to increased adverse selection problems arising from the non-delivery of annual reports. In addition, stock return volatility for treatment firms increased by 23% during the strike, but the increase stems primarily from systematic volatility, as expected. Overall, our paper quantifies the impact and importance of annual reports for capital market participants.
Keywords: annual report; trading volume; return volatility; information asymmetry; adverse selection
JEL Classification: M40; M41; G14; D82; D83
Suggested Citation: Suggested Citation