Accounting Earnings,Annual Report Readability And Market Response

Earnings reveal important information about the performance of the company and the trend of the stock price.It is the most important explanation factor for the stock returns of the company in the long term and even in the short term.Previous literature has shown that the market responds to earnings.However,this response to earnings depends on the information environment.The recent literature began to pay attention to the influence of investors on obtaining and understanding accounting earnings information from disclosures such as annual reports.The textual information disclosed in the annual report of the company provides investors with new ways to understand the company's situation,and is of great significance for the research on the market reaction of earnings.First,the text disclosure contains data generation function information for financial data that accounting researchers have been researching for decades.Obviously,if the income recognition policy is different,the two reported sales revenue figures will represent different properties.However,the differences in data generation functions may also be due to different management incentives.For example,when the text of the management discussion section in the annual report is complex and difficult to understand,managers may confuse the information and the reported financial data may have a lower quality.Therefore,the annual report text information can provide very useful information for understanding financial data.Textual information can provide a very useful context for understanding financial data and testing interesting economic assumptions.This paper studies the regulation of the annual report's text readability for the market reaction to accounting earnings,and adds an additional dimension to the inspection of market efficiency.In a typical company report,textual narratives account for an average of 80%of annual reports,representing the vast majority of disclosures,and investors5 understanding of accounting earnings is affected by textual information.The more readable the text of the annual report,the more adequate the investor's understanding of the earnings;the more difficult the annual report,the less investor's disclosure of the earnings.Based on this,this study found that the readability of annual reports may affect the market's response to earnings.Firstly,on the basis of reading the foreign literature about readability,this paper combs the literature on the readability of research both at home and abroad,taking into account that the annual report text and accounting earnings are the ways to disclose information to external information users.This paper studies market reaction to accounting eamings,and based on this,it constructs and proposes the theoretical models and unique research hypotheses of this paper,and studies the effect of the text readability of the"Management Discussion and Analysis" section of the annual report on the market reaction to accounting surpluses.Secondly,this article selected the listed company of the A-share main board from 2007 to 2016 as an experimental sample,and deleted the financial companies and ST companies.This paper explores the disclosure of annual reports through the incident research method.When the incident occurred,the readability of the "Management Discussion and Analysis"section of the annual report impacted the relationship between accounting earnings and market reaction,that is,study how textual language barriers affect the reaction of capital markets to information disclosure.The main conclusions of this paper are three points:(1)There is a significant positive correlation between the changes in the earnings of listed companies and market responses in China;(2)For the good news,the readability of the annual report has a significant regulatory effect,enhancing the market's response to good news;for bad news,the readability of the annual report has a significant regulatory effect,weakening the market's response to bad news;(3)for investors,institutional investors have information advantages.They are less dependent on the content of the annual report.The professional level of institutional investors is relatively high,the readability of the annual report does not have a regulatory effect on the market response to the surplus.Small investors have a high degree of reliance on annual reports,and their professional standards are limited.Therefore,the readability of annual reports has a significant regulatory effect on the market response to surplus.The innovation of this paper lies in studying accounting earnings from the perspective of market reaction,introducing the readability of annual report text to expand the thinking of earnings research,and trying for the first time to use Chinese text readability to conduct large-scale research in China.Based on the characteristies of China's capital market,it has conducted unique and extended research.The research in this paper has certain practical significance for users of accounting information to make relevant investment decisions,and it has certain practical significance for securities regulatory agencies to formulate information disclosure policies for listed companies,so as to ensure that the benefits of new policies do not bring any adverse factors.For example,the extra length makes the annual report more difficult.