Analyst Report Readability and Stock Returns

33 Pages Posted: 21 Mar 2016

See all articles by Chia‐Chun Hsieh

Chia‐Chun Hsieh

National Chung Cheng University

Kai Wai Hui

The University of Hong Kong (HKU) - Department of Accounting

Yao Zhang

Tong Ji University - Accounting Department

Date Written: January-February 2016

Abstract

This study investigates the market's response to analyst report readability. We posit that readable reports decrease uncertainty of earnings expectations and by extension increase stock prices. Our results show that the equity market reacts more positively to readable reports and that this positive reaction is attributable to a reduction in uncertainty of future performance. Moreover, we find that the effect of readability on stock prices is significantly positive only for firms with greater R&D spending, higher bid‐ask spreads, a greater proportion of uninformed investors, and more experienced analysts, which suggests that readability matters only when information asymmetry in the equity market is high.

Keywords: readability, analyst reports, stock returns

Suggested Citation

Hsieh, Chia-Chun and Hui, Kai Wai and Zhang, Yao, Analyst Report Readability and Stock Returns (January-February 2016). Journal of Business Finance & Accounting, Vol. 43, Issue 1-2, pp. 98-130, 2016, Available at SSRN: https://ssrn.com/abstract=2752179 or http://dx.doi.org/10.1111/jbfa.12166

Chia-Chun Hsieh (Contact Author)

National Chung Cheng University ( email )

Min-Shiung, Chia-Yi, 621
Taiwan

Kai Wai Hui

The University of Hong Kong (HKU) - Department of Accounting ( email )

Pokfulam Road
Hong Kong, Pokfulam
Hong Kong

Yao Zhang

Tong Ji University - Accounting Department ( email )

100 Wudong Road
Shanghai 200433
China

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