6,538
Views
27
CrossRef citations to date
0
Altmetric
Articles

Annual Report Narratives and the Cost of Equity Capital: U.K. Evidence of a U-shaped Relation

, , ORCID Icon &
Pages 27-54 | Received 29 Nov 2017, Accepted 11 Nov 2019, Published online: 26 Jan 2020

References

  • Athanasakou, V., El-Haj, M., Rayson, P., Walker, M., & Young, S. (2019). Annual report commentary on the value creation process. Working Paper. doi:10.2139/ssrn.3212854.
  • Athanasakou, V., & Hussainey, K. (2014). The perceived credibility of forward-looking performance disclosures. Accounting and Business Research, 44(3), 227–259.
  • Barnett, A., & Leoffler, K. (1979). Readability of accounting and auditing messages. Journal of Business Communication, 16(3), 49–59.
  • Barry, C. B., & Brown, S. J. (1984). Differential information and the small firm effect. Journal of Financial Economics, 13(2), 283–294.
  • Barry, C. B., & Brown, S. J. (1986). Limited information as a source of risk. The Journal of Portfolio Management, 12(2), 66–72.
  • Beattie, V., & Thomson, S. (2007). Lifting the lid on the use of content analysis to investigate intellectual capital disclosures. Accounting Forum, 31(2), 129–163.
  • Bertomeu, J., Beyer, A., & Dye, R. A. (2011). Capital structure, cost of capital, and voluntary disclosures. The Accounting Review, 86(3), 857–886.
  • Beyer, A., Cohen, D. A., Lys, T. Z., & Walther, B. R. (2010). The financial reporting environment: Review of the recent literature. Journal of Accounting and Economics, 50(2–3), 296–343.
  • Bloomfield, R. J. (2002). The “incomplete Revelation hypothesis” and financial reporting. Accounting Horizons, 16(3), 233–243.
  • Bonsall, S. B., & Miller, B. P. (2017). The impact of narrative disclosure readability on bond ratings and the cost of debt. Review of Accounting Studies, 22(2), 608–643.
  • Botosan, C. A. (1997). Disclosure level and the cost of equity capital. The Accounting Review, 72(3), 323–349.
  • Botosan, C. A. (2006). Disclosure and the cost of capital: What do we know? Accounting and Business Research, 36(Supplement 1), 31–40.
  • Botosan, C. A., & Plumlee, M. A. (2002). A re-examination of disclosure level and the expected cost of equity capital. Journal of Accounting Research, 40(1), 21–40.
  • Bozzolan, S., Trombetta, M., & Beretta, S. (2009). Forward looking disclosures, financial verifiability and analysts’ forecasts: A study of cross-listed European firms. European Accounting Review, 18(3), 435–473.
  • Brown, S. (1979). The effect of estimation risk on capital market equilibrium. The Journal of Financial and Quantitative Analysis, 14(2), 215–220.
  • Bushee, B. J., Gow, I. D., & Taylor, D. (2018). Linguistic complexity in firm disclosures: Obfuscation or information? Journal of Accounting Research, 56(1), 85–121.
  • Callen, J. L., Khan, M., & Lu, H. (2013). Accounting quality, stock price delay, and future stock returns. Contemporary Accounting Research, 30(1), 269–295.
  • Campbell, J. (1991). A variance decomposition for stock returns. The Economic Journal, 101(405), 157–179.
  • Claus, J., & Thomas, J. (2001). Equity premia as low as three percent? Evidence from analysts’ earnings forecasts for domestic and international stock markets. The Journal of Finance, 56(5), 1629–1666.
  • Core, J., & Guay, W. (1999). The use of equity grants to manage optimal equity incentive levels. Journal of Accounting and Economics, 28(2), 151–184.
  • Courtis, J. K. (1986). An investigation into annual report readability and corporate risk return relationships. Accounting and Business Research, 16(64), 285–294.
  • Dacin, M. T., Goodstein, J., & Scott, W. R. (2002). Institutional theory and institutional change: Introduction to the special research forum. Academy of Management Journal, 45(1), 45–56.
  • Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting earnings management. The Accounting Review, 70(2), 193–225.
  • Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1996). Causes and consequences of earnings manipulation: An analysis of firms subject to enforcement actions by the SEC. Contemporary Accounting Research, 13(1), 1–36.
  • Deephouse, D. L. (1996). Does Isomorphism Legitimate? Academy of Management Journal, 39(4), 1024–1039.
  • DiMaggio, P. J., & Powell, W. W. (1983). The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48(2), 147–160.
  • Dye, R. A. (1985). Disclosure of non-proprietary information. Journal of Accounting Research, 23, 123–145.
  • Easley, D., & O’Hara, M. (2004). Information and the cost of capital. The Journal of Finance, 59(4), 1553–1583.
  • Easton, P. D. (2004). PE ratios, PEG ratios, and estimating the implied expected rate of return on equity capital. The Accounting Review, 79(1), 73–95.
  • El-Haj, M., Alves, P., Rayson, P., Walker, M., & Young, S. (2020). Retrieving, classifying and analysing narrative commentary in unstructured (glossy) annual reports published as PDF files. Accounting and Business Research, 50(1), 6–34.
  • El-Haj, M., Rayson, P., Walker, M., Simaki, V., & Young, S. (2019). In search of meaning: Lessons, resources and next steps for computational analysis of financial discourse. Journal of Business Finance and Accounting, 46(3–4), 265–306.
  • Elton, E. (1999). Expected return, realized return, and asset pricing tests. The Journal of Finance, 54, 1199–1220.
  • Financial Reporting Council (FRC). (2009). Louder than words: Principles and actions for making corporate reports less complex and more relevant. London: Author.
  • Financial Reporting Council (FRC). (2011). Cutting clutter in annual reports. London: Author.
  • Francis, J., Nanda, D., & Olsson, P. (2008). Voluntary disclosure, earnings quality, and cost of capital. Journal of Accounting Research, 46(1), 53–99.
  • GC100. (2016). Directors’ remuneration: Revised GC100 and investor group directors’ remuneration reporting guidance. Retrieved from https://uk.practicallaw.thomsonreuters.com/7-632-2185?transitionType=Default&contextData=(sc.Default)
  • Gebhardt, W. R., Lee, C. M. C., & Swaminathan, B. (2001). Toward an implied cost of capital. Journal of Accounting Research, 39(1), 135–176.
  • Grüning, M. (2011). Artificial intelligence measurement of disclosure (AIMD). European Accounting Review, 20(3), 485–519.
  • Gunning, R. (1968). The technique of clear writing. New York, NY: McGraw-Hill.
  • Hail, L., & Leuz, C. (2006). International differences in the cost of equity capital: Do legal institutions and securities regulation matter? Journal of Accounting Research, 44(3), 485–531.
  • Hou, K., Van Dijk, M. A., & Zhang, Y. (2012). The implied cost of capital: A new approach. Journal of Accounting and Economics, 53(3), 504–526.
  • Hussainey, K., Schleicher, T., & Walker, M. (2003). Undertaking large-scale disclosure studies when AIMR-FAF ratings are not available: The case of prices leading earnings. Accounting and Business Research, 33(4), 275–294.
  • Kincaid, J. P., Fishburne, R. P., Rogers, R. L., & Chissom, B. S. (1975). Derivation of new readability formulas (automated readability index, fog count, and flesch reading ease formula) for Navy enlisted personnel. Research Branch Report 8–75. Chief of Naval Technical Training: Naval Air Station Memphis.
  • Kothari, S. P., Li, X., & Short, J. (2009). The effect of disclosures by management, analysts, and financial press on cost of capital, return volatility, and analyst forecasts: A study using content analysis. The Accounting Review, 84(5), 1639–1670.
  • Kothari, S. P., & Sloan, R. G. (1992). Information in prices about future earnings. Journal of Accounting and Economics, 15(2–3), 143–171.
  • Larcker, D. F., & Rusticus, T. O. (2007). Endogeneity and empirical accounting research. European Accounting Review, 16(1), 207–215.
  • Lawrence, A. (2013). Individual investors and financial disclosure. Journal of Accounting and Economics, 56(1), 130–147.
  • Lee, Y.-J. (2012). The effect of quarterly report readability on information efficiency of stock prices. Contemporary Accounting Research, 29(4), 1137–1170.
  • Lehavy, R., Li, F., & Merkley, K. (2011). The effect of annual report readability on analyst following and the properties of their earnings forecasts. The Accounting Review, 86(3), 1087–1115.
  • Li, F. (2008). Annual report readability, current earnings, and earnings persistence. Journal of Accounting and Economics, 45(2–3), 221–247.
  • Miller, B. (2010). The effects of reporting complexity on small and large investor trading. The Accounting Review, 85(6), 2107–2143.
  • Ohlson, J. A., & Juettner-Nauroth, B. E. (2005). Expected EPS and EPS growth as determinants of value. Review of Accounting Studies, 10(2–3), 349–365.
  • Ronda-Pupol, G. A., & Guerras-Martin, L. A. N. (2012). Dynamics of the evolution of the strategy concept 1962–2008: A co-word analysis. Strategic Management Journal, 33(2), 162–188.
  • Rutherford, B. A. (2005). Genre analysis of corporate annual report narratives: A corpus linguistics-based approach. Journal of Business Communication, 42(4), 349–378.
  • Smith, J. E., & Smith, N. P. (1971). Readability: A measure of the performance of the communication function in financial reporting. The Accounting Review, 46(3), 522–561.
  • Smith, M., & Taffler, R. J. (2000). The chairman’s statement - A content analysis of discretionary narrative disclosures. Accounting, Auditing & Accountability Journal, 13(5), 624–647.
  • Stocken, P. C. (2000). Credibility of voluntary disclosure. The RAND Journal of Economics, 31(2), 359–374.
  • Subramanian, R., Insley, R. G., & Blackwell, R. D. (1993). Performance and readability: A comparison of annual reports of Profitable and Unprofitable Corporations. Journal of Business Communication, 30(1), 49–61.
  • Verrecchia, R. E. (1983). Discretionary disclosure. Journal of Accounting and Economics, 5, 179–194.
  • Vuolteenaho, T. (2002). What drives firm-level stock returns? The Journal of Finance, 57(1), 233–264.
  • Wang, C. (2015). Measurement errors of expected-return proxies and the implied cost of capital. Working Paper, Harvard University.
  • Wang, C. (2017). Commentary on: Implied cost of equity capital estimates as predictors of accounting returns and stock returns. Journal of Financial Reporting, 2(1), 95–106.
  • You, H., & Zhang, X. (2009). Financial reporting complexity and investor underreaction to 10-K information. Review of Accounting Studies, 14(4), 559–586.
  • Zhang, S., & Aerts, W. (2015). Management’s performance justification and failure to meet earnings thresholds. Accounting and Business Research, 45(6–7), 841–868.