Do Images Provide Relevant Information to Investors? An Exploratory Study

Abstract

We introduce the concept of "visual-readability" in annual reports and use novel machine-learning algorithms to construct visual-readability metrics: visual use and information-content-reinforcement (the degree to which information content in images reinforces text). We find that increased news coverage and asset growth are associated with increased visual use. In turn, increased visual use is associated with subsequent-year realizations: lower risk and cost-of-capital, increased institutional holdings, and higher bond ratings, market share, and ROA. Further, the degree of information-content-reinforcement is associated with subsequent lower analyst disagreement and greater forecast accuracy. By and large, our results are consistent with an information-based story.

Keywords: Visual readability, visual attention, visual sentiment, annual reports, images, information reinforcement, analyst forecast accuracy.

JEL Classification: D83, G12, G14, M41