Readability of the board's report and the reaction of investors (with respect to economic-political news)
Quarterly Journal of Securities Exchange

Quarterly Journal of Securities Exchange

Readability of the board's report and the reaction of investors (with respect to economic-political news)

Document Type : Original Article

Authors
hosna ghahremani 1
fatemeh sarraf 2
Roya Darabi 3
1 Phd Student, Department of Accounting, South Tehran Branch, Islamic Azad University, Tehran, Iran
2 Assistant Professor, Department of Accounting, South Tehran Branch, Islamic Azad University, Tehran, Iran
3 Associate Professor, Department of Accounting, South Tehran Branch, Islamic Azad University, Tehran, Iran
10.22034/jse.2020.11178
Abstract
Financial reports are the only source of internal information where provided by the board of directors to investors. The qualitative features of the provided information, which have a significant role in the optimal allocation of resources, largely depend on the readability of the information. With respect to this fact that the readability and quickly getting the message from a report is one of the essential qualitative features of presenting information, the current study aims to investigate the effect of this qualitative feature on the reaction of investors and increase in quality of companies’ voluntary disclosure. The readability of the board's report is measured using Fog model while the investors' reaction is measured trough the cumulative abnormal return and trading volume. The statistical population of the research includes: Companies listed on Tehran Stock Exchange during 1392-1396, which out of them 159 companies were selected to study using the systematic exclusion sampling method. To test the hypotheses, multivariate regression, panel data and Eviews software have been used. The results indicate a significant relationship between the reaction of investors and readability of the board's report, however, the relationship between the readability of the board's report and the reaction of investors to major economic-political news was not approved. Due to the ability of the current research to inform investors from the manner of providing information by the manager and the readability of the reports, the results of the research are applicable.
Keywords
readability of the board’s report
reaction of investors
cumulative abnormal return
  1. باقری، ابوطالب.، حصارزاده، رضا.، عباس زاده، محمدرضا. (1397). خوانایی صورتهای مالی و حساسیت سرمایه­گذارانبه استفاده از اطلاعات حسابداری. چشم انداز مدیریت­مالی، شماره 23. ص ص 87-103
  2. بی نیاز، فاطمه.، حنایی، تکتم( 1396). بازشناسی عناصر موثر خوانایی در ادراک بزرگسالان: مطالعه موردی بلوار امامیه مشهد. مطالعات شهری، شماره 23، ص ص 17-28
  3. حسینی، سیدعلی، فصیحی، صغری و محمودیان، نسیم (1394). نقش تحلیل متن و بازیابی اطلاعات در حوزه حسابداری. پژوهش حسابداری ، شماره 19، زمستان. ص ص 25- 46
  4. سرهنگی، حجت.، ابراهیمی، سعید و یاری ابهری، حمیدالله (1393). بررسی پیچیدگی گزارشگری مالی بر رفتار معاملاتی سرمایه گذاران در بازار سرمایه ایران. فصلنامه بورس اوراق بهادار ، شماره 27، ص ص 78-59.
  5. سینایی، حسنعلی و داودی، عبدالله ( 1388). بررسی رابطه شفاف سازی اطلاعات مالی و رفتار سرمایه گذاران در بورس اوراق بهادار تهران. تحقیقات مالی، شماره 11 ص ص 26-60
  6. صفری گرایلی، مهدی و رضایی، یاسر (1393). مدیریت سود و خوانایی گزارش گری مالی. فصلنامه دانش حسابرسی، شماره 69. ص ص 217 -230
  7. صفری گرایلی، مهدی و رضایی، یاسر. (1397). توانایی مدیریت و خوانایی گزارشگری مالی: آزمون نظریه علامت دهی. دانش حسابداری، شماره 2. ص ص 218-191.
  8. Ajina, A., Laouiti, M., Msolli, B. (2016). Guiding through the fog: Does annual report readability reveal earnings management. Research in International Business and Finance. 38, pp. 509-516
  9. Antweiler, W., Frank, D. (2004). Is All That Talk Just Noise The Information Content of Internet Stock Message Boards. Finance, Vol. 59, pp. 1259-129.
  10. Bloomfield, J. (2008). Discussion of Annual report readability, current earnings and earnings persistence. Accounting and Economics, Vol. 45, pp. 248–252.
  11. Brown, K. D., Harlow, W. V.,& Tinic, S. M.(1998). Risk avertion, uncertain information and market efficiency. Finance Economics, Vol. 22, pp. 355-385
  12. Burke,. J. F. (1997). Report on standards overload. The CPA Journal, Vol. 66, pp. 3-11. and M.
  13. Jones and. (2003). Financial reporting of good news and bad news: Evidence from accounting narratives. Accounting and Business Research, Vol. 33, pp. 171-185.
  14. Chia-Chun Hsieh., Kai Wai Hui., Yao Zhang. (2016). Analyst Report Readability and Stock Returns. Journal of Business Financ& Accounting, Vol. 43(12), pp. 98-130.
  15. Courtis, J.K. (2004). Corporate report obfuscation: artefact or phenomenon. British Accounting Review, Vol. 36(3), pp. 291-312.
  16. Daniel, K., Hirshleifer, A., Subrahmanyam, D. (1998). Investor Psychology and security market under- and over- reactions. Finance, Vol. 53, pp. 1839-1885.
  17. Debondt, W.F., & Thaler, R. H. (1985). Does the stock marketoverreact? Finance, Vol. 40, pp. 793-805
  18. Debondt, W.F., & Thaler, R. H. (1987). Further evidence on investor overreaction and stock market seasonality. Finance, Vol. 42, pp. 557-581
  19. Dechow M., Sloan G., Sweeney P. (1995). Detecting earnings management. Accounting Review, 70, pp.193-225.
  20. Hasan, M.M. (2017). Managerial ability, annual report readability and disclosure tone (April 23, 2017). Available at SSRN
  21. Heitzman, S., Wasley, C., & Zimmerman, J. (2010). The joint effects of materiality thresholds and Voluntary disclosureincentives on firms disclosure decisions. Accounting and Economics, Vol. 49(1), pp. 109-132.
  22. Hellstrom, K. (2006). The Value Relevance of Financial Accounting Information in a Transition Economy: The Case of the Czech Republic. European Accounting Review, Vol. 15(3), pp 3-25.
  23. Huang, Y. (2010). Stock price reaction to daily limit moves: Evidence from the Taiwan stock Exchange. business Finance & accounting, Vol. 25, pp. 469-483.
  24. Jones, M.J., Shoemaker, P.A. (1994). Accounting narratives: A review of empirical studies of content and readability. Accounting literature, Vol. 13, pp. 142–184
  25. Lawrence A. (2013). Individual investors and financial disclosure. Accounting and Economics, Vol. 56, pp. 130–147.
  26. Lehavy, R., Li, F., Kenneth, M. (2011). The effect of annual report readability onanalyst following and the properties of their earnings forecasts. Accounting Review, Vol. 86, pp. 1087 -1115.
  27. Li, F. (2008). Annual report readability, current earnings, and persistence. Accounting and Economics, Vol. 45, pp. 221–247.
  28. Lo, K., Ramos, F., Rogo,R. (2017 ). Earnings management and annual report readability. Accounting and Economics, Vol. 63, pp. 1–25.
  29. Meckling, W.H., Jensen. (1976). Theory of the firm: Managerial behaviour, agencycosts and ownership structure. Journal of Financial Economics, Vol. 3, pp. 305-360.
  30. Miller, B. (2010). The effects of reporting complexity on small and large investor trading. Accounting Review, Vol. 85, pp. 2107–2143.
  31. Radin, A. (2007). Have we created financial statement disclosure overload? The CPA journal, Vol. 77, pp. 6-20
  32. Scot Asay, H., Brooke Elliot, w. (2016). Disclosure Readability and the Sensitivity of Investors’ Valuation Judgments to Outside Information. Accounting Review, Vol. 90(1), pp. 1-51.
  33. Subramanian, R., Insley, R.G., Blackwell, R.D. Performance and readability: a comparison of annual reports of profitable andunprofitable corporations. (1993). Business Communication, Vol. 30, pp. 49–61.
  34. Xu, Q., Guy, D. (2018). Executive age and the readability of financial reports. Advances in Accounting, Vol. 43, pp. 70-81.
  35. You, H., Zhang, X. Financial reporting complexity and investor underreaction to 10-K information. .)2009(. Review of Accounting Studies, Vol. 14, pp. 559-586.

 

Quarterly Journal of Securities Exchange
Volume 13, Issue 50
Summer 2020
Pages 27-53