Annual Report Readability and Earnings Response Coefficients: Evidence from Foreign Firms Cross-Listed in the U.S.

• In Event: Narrative Disclosure and Readability

Abstract

This study examines the association between the readability of Form 20-F (20-F) and earnings informativeness for a large sample of foreign firms that cross-list on U.S. stock markets. We find that 20-F readability varies across country of origin and decreases over time. We also find that 20-F readability is positively associated with earnings response coefficients, indicating that investors are able to better incorporate earnings information into share prices when the 20-F is more readable. This finding is more pronounced for firms with larger discrepancies between local and U.S. GAAP and for the time period after the reconciliation requirement was eliminated. Overall, we provide consistent evidence that 20-F readability plays an important role in the informativeness of earnings for foreign issuers.

Authors

• Stephen Wen-Jen Lin, Florida International University

• Wen-hsin Hsu, National Taiwan University