Can the readability of an annual report forecast negative earnings surprises?

Hong-Quan Li and Yang Yang

Finance Research Letters, 2024, vol. 62, issue PA

Abstract: This study examines the relationship between the readability of an annual report and negative earnings surprises. Using logit regression, we find that less clear reports can predict unexpected negative earnings. This relationship persists even after accounting for deviations greater than 50 %. Furthermore, this effect is more pronounced for firms with less balanced shareholder equity and nonstate-owned enterprises. Our findings suggest that ambiguous disclosures can serve as early warning signals for investors, with important implications for regulatory oversight.

Keywords: Negative earnings surprises; Annual report readability; Risk management (search for similar items in EconPapers)
JEL-codes: D82 G14 G18 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:62:y:2024:i:pa:s1544612324002216

DOI: 10.1016/j.frl.2024.105191

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