Annual Report Readability and Stock Liquidity
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 hinders investor's 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 regression techniques, and use of alternative liquidity and readability proxies.
Financial Markets, Institutions Instruments