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
Citation
KIM, Chansog (Francis); WANG, Ke; and ZHANG, Liandong.
Readability of 10-K reports and stock price crash risk. (2019). Contemporary Accounting Research. 36, (2), 1184-1216.
Available at: https://ink.library.smu.edu.sg/soa_research/1783
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1111/1911-3846.12452