A Study on the Relationship between Annual Report Readability and Earnings Persistence
Date Issued
2010
Date
2010
Author(s)
Chang, Shih-Chieh
Abstract
The main purpose of annual reports is to help users make decisions. Hence, prior researches have focused on the decision relevance of annual reports for a long time. Compared with quantitative accounting data, textual information in annual reports contains much more forward-looking information, thus is more relevant to decision-making. However, most of prior studies focused on quantitative accounting data instead of textual information.
This study attempts to test management obfuscation hypothesis by investigating the relationships between textual information in annual reports, performance, earnings persistence, and other financial variables.
We use the readability formulas developed by Si-Yu Jing（1995）to calculate the readability of annual reports, and use the model of Li（2008）to investigate the relationships between annual reports readability and performance. Furthermore, we investigate the relationships between annual reports readability and earnings persistence.
We find that annual reports issued by firms with lower earnings or less persistent positive earnings are harder to read.
Subjects
annual report readability
performance
earnings persistence
management obfuscation hypothesis
Type
thesis
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