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 hinder investors’ 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 estimation techniques, and use of alternative liquidity and readability proxies.
Original language | English |
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Pages (from-to) | 159-186 |
Number of pages | 28 |
Journal | Financial Markets, Insitutions and Instruments |
Volume | 28 |
Issue number | 2 |
Early online date | 5 Mar 2019 |
DOIs | |
Publication status | Published - 1 May 2019 |
Keywords
- annual report readability
- information asymmetry
- stock liquidity
- textual complexity
ASJC Scopus subject areas
- Finance
- Economics, Econometrics and Finance(all)
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Dimitrios Gounopoulos
- Management - Professor
- Accounting, Finance & Law
Person: Research & Teaching