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

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  • Li, Hong-Quan
  • Yang, Yang

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.

Suggested Citation

  • Li, Hong-Quan & Yang, Yang, 2024. "Can the readability of an annual report forecast negative earnings surprises?," Finance Research Letters, Elsevier, vol. 62(PA).
    • Handle: RePEc:eee:finlet:v:62:y:2024:i:pa:s1544612324002216
    DOI: 10.1016/j.frl.2024.105191
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    References listed on IDEAS

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    More about this item

    Keywords

    Negative earnings surprises; Annual report readability; Risk management;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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