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Measuring Readability in Financial Disclosures

The Journal of finance (New York), 2014-08, Vol.69 (4), p.1643-1671 [Peer Reviewed Journal]

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Title:
Measuring Readability in Financial Disclosures
Author: LOUGHRAN, TIM ; MCDONALD, BILL
Subjects: Analytical forecasting ; Business structures ; Communication ; Contextual analysis ; Control variables ; Correlation ; Disclosure ; Earnings forecasting ; English language ; Exchange ; Financial disclosure ; Investors ; Linear regression ; Measurement ; Measurement techniques ; Readability ; Studies ; Syllables ; Valuation ; Vocabulary
Is Part Of: The Journal of finance (New York), 2014-08, Vol.69 (4), p.1643-1671
Description: Defining and measuring readability in the context of financial disclosures becomes important with the increasing use of textual analysis and the Securities and Exchange Commission's plain English initiative. We propose defining readability as the effective communication of valuation-relevant information. The Fog Index—the most commonly applied readability measure—is shown to be poorly specified in financial applications. Of Fog's two components, one is misspecified and the other is difficult to measure. We report that 10-K document file size provides a simple readability proxy that outperforms the Fog Index, does not require document parsing, facilitates replication, and is correlated with alternative readability constructs.
Publisher: Cambridge: Blackwell Publishing Ltd
Language: English
Identifier: ISSN: 0022-1082
EISSN: 1540-6261
DOI: 10.1111/jofi.12162
CODEN: JLFIAN
Source: Alma/SFX Local Collection

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