Publication Type

Journal Article

Version

submittedVersion

Publication Date

6-2019

Abstract

This study shows that less readable 10‐K reports are associated with higher stock price crash risk. The results are consistent with the argument that managers can successfully hide adverse information by writing complex financial reports, which leads to stock price crashes when the hidden bad news accumulates and reaches a tipping point. Cross‐sectional analyses show that the effect of financial reporting complexity on crash risk is more pronounced for firms with persistent negative earnings news or transitory positive earnings news, greater chief executive officer stock option incentives, or lower litigation risk. Finally, accrual manipulation appears to be positively related to crash risk, even since the Sarbanes-Oxley Act, if the manipulation is accompanied by complex 10-K reports.

Keywords

Readability, textual analysis, crash risk, SOX, 10-K

Discipline

Accounting | Corporate Finance

Research Areas

Corporate Reporting and Disclosure

Publication

Contemporary Accounting Research

Volume

36

Issue

2

First Page

1184

Last Page

1216

ISSN

0823-9150

Identifier

10.1111/1911-3846.12452

Publisher

Canadian Academic Accounting Association

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1111/1911-3846.12452

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