Annual Report Readability and Stock Liquidity

Financial Markets, Institutions & Instruments, Forthcoming

41 Pages Posted: 19 Mar 2018

See all articles by Sabri Boubaker

Sabri Boubaker

University Paris-Est Créteil (UPEC) - Institut de Recherche en Gestion

Dimitrios Gounopoulos

University of Bath

Hatem Rjiba

ESSCA School of Management

Date Written: March 9, 2018

Abstract

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

Boubaker, Sabri and Gounopoulos, Dimitrios and Rjiba, Hatem, Annual Report Readability and Stock Liquidity (March 9, 2018). Financial Markets, Institutions & Instruments, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3141045

Sabri Boubaker

University Paris-Est Créteil (UPEC) - Institut de Recherche en Gestion ( email )

61 Avenue du General de Gaulle
94010 Creteil
France

HOME PAGE: http://www.irg.u-pec.fr/enseignant.php?num=58

Dimitrios Gounopoulos

University of Bath ( email )

School of Management,
Wessex House, Claverton Down
Bath, BA2 7AY
United Kingdom

Hatem Rjiba (Contact Author)

ESSCA School of Management ( email )

55 Quai Alphonse Le Gallo
ESSCA
Boulogne Billancourt, 92513
France

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