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Analyst Report Readability and Stock Returns
Author(s) -
Hsieh ChiaChun,
Hui Kai Wai,
Zhang Yao
Publication year - 2015
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/jbfa.12166
Subject(s) - readability , equity (law) , earnings , stock (firearms) , economics , information asymmetry , monetary economics , financial economics , business , econometrics , accounting , finance , mechanical engineering , political science , law , engineering , philosophy , linguistics
This study investigates the market's response to analyst report readability. We posit that readable reports decrease uncertainty of earnings expectations and by extension increase stock prices. Our results show that the equity market reacts more positively to readable reports and that this positive reaction is attributable to a reduction in uncertainty of future performance. Moreover, we find that the effect of readability on stock prices is significantly positive only for firms with greater R&D spending, higher bid‐ask spreads, a greater proportion of uninformed investors, and more experienced analysts, which suggests that readability matters only when information asymmetry in the equity market is high.