Annual Report Readability and Stock Liquidity
Financial Markets, Institutions & Instruments, Forthcoming
41 Pages Posted: 19 Mar 2018
Date Written: March 9, 2018
We examine the effect of annual report textual complexity on firms’ stock liquidity. Using techniques from computational linguistics, we predict and find that less readable filings are associated with lower stock liquidity. Our study provides evidence that difficult-to-read annual reports hinders investor’s ability to process and analyze information contained in corporate annual reports, reducing thereby their willingness to trade which decreases stock liquidity. Our findings are robust to a battery of sensitivity tests, including endogeneity, use of alternative regression techniques, and use of alternative liquidity and readability proxies.
Keywords: Annual Report Readability, Textual Complexity, Stock Liquidity, Information Asymmetry
JEL Classification: G11, G12, M48
Suggested Citation: Suggested Citation