Does the Readability of Target Firm’ Annual Reports Matter to Bidders?

Abstract

This study investigates the value-relevant implications of the target firm’s annual report readability for acquiring firms. We find robust evidence that readability has a positive association with bidder market reaction and bid premiums, as well as a negative association with the time to complete the M&A. Certain deal characteristics such as the number of bidders, the type of offer, and the quality of the advisors on the deal, enhance the importance of readability. Additionally, this finding is more pronounced among targets with less transparency or less entrenched managers. Overall, these findings indicate that the readability of target 10-K filings matters to investors and bidding firms.

Keywords: 10-K Filing Readability, Acquisition Performance, Mergers and Acquisitions, Information Asymmetry

JEL Classification: G32, G34, M41