Market value of 10-K readability and corporate cash holdings

Sanghak Choi, Chune Young Chung, Daejin Kim and Junyoup Lee

Economics Letters, 2021, vol. 201, issue C

Abstract: We investigate the effect of 10-K readability on the association between stock returns and changes in cash holdings and find that readability significantly increases the marginal value of cash holdings (MVCH). The value spread for firms with high-readability reports is about US $0.08 per dollar of cash. This effect is stronger for firms with more severe managerial agency problems, less external monitoring, and greater financial constraints. Additional analyses suggest that the direction of causality runs from readability to the MVCH. We posit that more readable 10-Ks facilitate investors’ monitoring, inducing firms’ efficient cash use.

Keywords: Readability; Marginal value of corporate cash holdings (search for similar items in EconPapers)
JEL-codes: G30 G34 M40 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:201:y:2021:i:c:s0165176521000732

DOI: 10.1016/j.econlet.2021.109796

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