THE EFFECT OF ANNUAL REPORT READABILITY ON FINANCIAL ANALYSTS’BEHAVIOR

Year 2018, Volume: 5 Issue: 1, 26 - 37, 30.03.2018

Ajina Aymen Ben Saad Sourour Msolli Badreddine

https://doi.org/10.17261/Pressacademia.2018.782

Abstract

Purpose-This article
examines a little investigated issue in France concerning the effect of the
readability of financial information upon the behavior of financial analysts.
We investigate 88 companies listed on the French CAC All between 2009 and 2014.
Readable annual reports are those that provide homogeneous, simple, clear,
readable information that is understandable by all investors.

Methodology -We
investigate 88 companies listed on the French CAC All between 2009 and 2014.
Readable annual reports are those that provide homogeneous, simple, clear,
readable information that is understandable by all investors.  To measure readability, we use the Gunning
Fog index and the Flesh Reading Ease formula. Results indicate a positive
relation between analyst following and the readability of the annual reports.
Furthermore, the number of financial analysts corresponds to the increasing
attention paid by institutional investors to companies. 

Findings- Readability reduces the agency
costs and information asymmetry between investors, which attracts financial
analysts, thus confirming the assumption of adverse selection. 

Conclusion-French companies need to issue
understandable information to the markets; this would imply using short
sentences, common words, or the active voice. The aim of such strategies is to
reduce the cognitive distance between information senders and users. 

Keywords

Annual report readability, financial analysts, Gunning Fog index, Flesh Reading Ease formula, French stock market

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