The causal effect of improved readability of financial reporting on stock price crash risk: Evidence from the Plain Writing Act of 2010

Shiyan Yin, Thanaset Chevapatrakul and Kai Yao

Economics Letters, 2022, vol. 216, issue C

Abstract: This paper shows that obfuscating financial reports leads to an increase in the risk of stock price crash. Exploiting the Plain Writing Act of 2010 (PWA) as the exogenous source of variation, the results of the difference-in-differences (DID) estimation show that improved readability of 10-Ks, as a result of the PWA, caused the stock price crash risk to fall. Our results survive the falsification check and are robust under different measures of readability and crash risk.

Keywords: Crash risk; Financial reporting; Readability; Textual analysis (search for similar items in EconPapers)
JEL-codes: C3 G38 M40 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:216:y:2022:i:c:s0165176522001872

DOI: 10.1016/j.econlet.2022.110614

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