| Unstructured annual report text information is more implicit than structured financial information,so it is more expensive for investors to interpret the text information.It has been found that corporate insiders manipulate the textual information of annual reports and obtain more excess returns through subsequent reverse trading behavior.To verify the effect of annual report textual characteristics on insider trading behavior,this paper conducts an empirical test.Based on the analysis of annual report texts of Chinese A-shares from2012-2021,this paper uses text analysis and multiple regression methods to synthesize the relationship between annual report readability,annual report tone and insider trading behavior of companies after annual report disclosure.It is found that(1)there is a significant inverse relationship between annual report readability and corporate insider trading behavior;(2)annual report tone is significantly positively related to the size of insider trading sales and negatively related to the size of net buying;(3)corporate insiders can obtain more excess returns by trading in the opposite direction of annual report text information;(4)corporate insiders will give more consideration to the management of annual report text when manipulating(4)corporate insiders will give more consideration to managing the readability of the annual report text.Given the importance of readability,the paper immediately regresses the sample in groups using the annual median of annual report readability as the cutoff,and finds that the impact of tone on insider trading decisions varies across different levels of annual report readability:(1)when annual report readability is high,there is no significant relationship between annual report tone and reverse trading by corporate insiders;(2)when annual report readability is low,annual report(2)when the annual report is poorly readable,the tone of the annual report is significantly negatively related to the net buying size of company insiders and significantly positively related to the selling size.Based on this,this paper further verifies the relationship between annual report text features and the cumulative excess returns in the short window after the occurrence of insider trading behavior.The results demonstrate that the market reacts differently after discovering the manipulation of annual report readability and tone by company insiders:(1)the market adjusts its previous false expectations formed by the signals of annual report readability and annual report tone based on the signals of insider trading behavior;(2)in the subsequent company insiders engage in trading operations that are counter to the tone,it is difficult for investors to detect the inconsistency of signals released by company insiders before and after,thus not causing a more negative market reaction.In addition,the manipulation of annual report text information by company insiders is more pronounced in companies with a low percentage of institutional investor ownership and low regional marketability.The findings of this paper enrich the study of the economic consequences of annual report text information from the theoretical aspect.From the practical aspect,this paper provides new perspectives for external investors to comprehensively analyze the company’s operation and for the supervisor to regulate the quality of company information disclosure. |
