Financial Opacity and Firm Performance: The Readability of REIT Annual Reports

Posted: 30 Aug 2012

See all articles by Stephen J. Dempsey

Stephen J. Dempsey

University of Vermont - School of Business Administration

David M. Harrison

UCF; Texas Tech University

Kimberly F. Luchtenberg

American University - Department of Finance and Real Estate

Michael Seiler

College of William and Mary - Finance

Multiple version iconThere are 2 versions of this paper

Date Written: 2012

Abstract

We examine the capital market pricing implications of firm disclosure opacity as measured by the linguistic readability of REIT annual reports. The SEC has expressed concern that firms selectively manage the transparency of disclosures in order to hide adverse information. After controlling for other non-experimental factors that influence the readability of REIT financial statements, we find (1) financial opacity is negatively related to reported firm performance, and (2) the residual opacity that remains after controlling for other determinants of annual report readability has incremental explanatory power for returns beyond the Fama and French (1992, 1993) risk factors. The opacity risk-return premium persists after controlling for a (heretofore undocumented) stark monotonic decrease in annual report readability following the Sarbanes-Oxley Act of 2002.

Keywords: REITs, Opacity, Performance, Readibility, Cost of Capital

Suggested Citation

Dempsey, Stephen J. and Harrison, David M. and Luchtenberg, Kimberly F. and Seiler, Michael, Financial Opacity and Firm Performance: The Readability of REIT Annual Reports (2012). Journal of Real Estate Finance and Economics, Vol. 45, No. 2, 2012. Available at SSRN: https://ssrn.com/abstract=2138173

Stephen J. Dempsey

University of Vermont - School of Business Administration ( email )

Burlington, VT 05405
United States
802-656-8322 (Phone)
802-656-8279 (Fax)

David M. Harrison (Contact Author)

UCF ( email )

Orlando, FL 32816-1400
United States
407-823-1127 (Phone)

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

Kimberly F. Luchtenberg

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States

Michael Seiler

College of William and Mary - Finance ( email )

VA
United States

HOME PAGE: http://mason.wm.edu/faculty/directory/seiler_m.php

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