The causal effect of improved readability of financial reporting on stock price crash risk: Evidence from the Plain Writing Act of 2010

Yin, Shiyan; Chevapatrakul, Thanaset; Yao, Kai

Abstract

This paper shows that obfuscating financial reports leads to an increase in the risk of stock price crash. Exploiting the Plain Writing Act of 2010 (PWA) as the exogenous source of variation, the results of the difference-in-differences (DID) estimation show that improved readability of 10-Ks, as a result of the PWA, caused the stock price crash risk to fall. Our results survive the falsification check and are robust under different measures of readability and crash risk.

Citation

Yin, S., Chevapatrakul, T., & Yao, K. (2022). The causal effect of improved readability of financial reporting on stock price crash risk: Evidence from the Plain Writing Act of 2010. Economics Letters, 216, Article 110614. https://doi.org/10.1016/j.econlet.2022.110614

• Journal Article Type: Article
• Acceptance Date: May 13, 2022
• Online Publication Date: May 31, 2022
• Publication Date: Jul 1, 2022
• Deposit Date: May 13, 2022
• Publicly Available Date: Dec 1, 2023
• Journal: Economics Letters
• Print ISSN: 0165-1765
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 216
• Article Number: 110614
• DOI: https://doi.org/10.1016/j.econlet.2022.110614
• Keywords: Economics and Econometrics; Finance
• Public URL: https://nottingham-repository.worktribe.com/output/8048609
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S0165176522001872