Does annual report readability explain the accrual anomaly?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ming Liu ◽  
Zhefeng Liu
Keyword(s):  
Market Efficiency ◽  
Annual Report ◽  
Efficient Market Hypothesis ◽  
Annual Reports ◽  
Accrual Anomaly ◽  
Efficient Market ◽  
Content Type ◽  
Market Friction ◽  
Unbiased Manner ◽  
Red Flag

PurposeThe purpose of the study is to investigate the possible role of annual report readability in accrual anomaly, shedding light on why investors fail to incorporate accruals information in a timely and unbiased manner beyond the original naive investor fixation explanation.Design/methodology/approachUsing five proxies of annual report readability and available data over 1993–2017, we investigate whether accrual overpricing is more severe when annual reports are less readable.FindingsWe find little (substantive) evidence of accrual overpricing among high (low) readability firms. The readability effects are contingent on the level of business complexity and earnings management.Research limitations/implicationsThis study extends the original naive investor fixation explanation and documents annual report complexity as a market friction in explaining the accrual anomaly, contributing to the mispricing vs risk debate and supporting the efficient market hypothesis.Practical implicationsLow readability of annual reports is a red flag to investors.Social implicationsThis study provides support for regulatory initiatives aimed at enhancing readability of corporate disclosures to address market frictions and improve market efficiency.Originality/valueAccrual anomaly has posed a challenge to the efficient market hypothesis. This study draws on and adds to the line of research indicating that annual report complexity is a friction erecting a barrier to transparency, hindering market efficiency. This study contributes to our understanding of the enigmatic accrual anomaly.

Testing the weak form of efficient market hypothesis for socially responsible and Shariah indexes in the USA

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Abbas Khan ◽  
Muhammad Yar Khan ◽  
Abdul Qayyum Khan ◽  
Majid Jamal Khan ◽  
Zia Ur Rahman
Keyword(s):  
Stock Prices ◽  
Arima Model ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Future Price ◽  
Short Term ◽  
Socially Responsible ◽  
Efficient Market ◽  
Content Type ◽  
The Us

Purpose By testing the weak form of efficient market hypothesis (EMH) this study aims to forecast the short-term stock prices of the US Dow and Jones environmental socially responsible index (SRI) and Shariah compliance index (SCI). Design/methodology/approach This study checks the validity of the weak form of EMH for both SCI and SRI prices by using different parametric and non-parametric tests, i.e. augmented Dickey-Fuller test, Philip-Perron test, runs test and variance ratio test. If the EMH is invalid, the research further forecasts short-term stock prices by applying autoregressive integrated moving average (ARIMA) model using daily price data from 2010 to 2018. Findings The research confirms that a weak form of EMH is not valid in the US SRI and SCI. The historical data can predict short-term future price movements by using technical ARIMA model. Research limitations/implications This study provides better guidance to risk-averse national and international investors to earn higher returns in the US SRI and SCI. This study can be extended to test the EMH of Islamic equity in the Middle East and North Africa region and other top Islamic indexes in the world. Originality/value This study is a new addition to the existing literature of equity investment and price forecasting by comparing and investigating the market efficiency of two interrelated US SRI and SCI.

scholarly journals Visual trends in the annual report: the case of Ericsson 1947-2016

2018 ◽  
Vol 23 (3) ◽  
pp. 312-325 ◽  
Author(s):  
Emelie Havemo
Keyword(s):  
Impression Management ◽  
Design Methodology ◽  
Annual Report ◽  
Annual Reports ◽  
Corporate Disclosure ◽  
Content Type ◽  
Visual Research ◽  
Visual Research Methods ◽  
Visual Elements ◽  
Reporting Practice

PurposeDisclosure research has argued that visuals are increasingly used in annual reports as a way to increase readability of the annual report, but comparatively little is known about of diagrams compared to graphs and photographs. The purpose of this paper is to provide a historical account of visuals use in corporate disclosure, with an emphasis on diagrams, to show changes from the 1940s until present-day reporting.Design/methodology/approachVisual research methods were applied to analyze how diagrams, photographs and graphs were used in 69 annual reports of the Swedish telecom company Ericsson.FindingsPhotographs have been used with increasing frequency since the 1950s. Graph and diagram use has increased significantly since the 1990s while photograph use remained stable, suggesting that graphs and diagrams increasingly complement photographs for visually representing the organization in corporate disclosure. Factors explaining the case company’s development include both internal (performance, individual preferences, shifting from a manufacturing-based strategy to a service-based strategy) and external (legislation, transformation of the telecom industry).Originality/valueVisual elements in annual reports are increasingly oriented toward immaterial representations of the organization’s standings and identity and diagrams are increasingly used and contribute to this. This finding motivates further research about diagram use in corporate communication, such as how different diagram types convey accounting messages, and whether diagrams serve as impression management devices. For regulators, it will be important to follow the emerging trend of diagram use, since it is becoming part of reporting practice.

scholarly journals Evidence for and Against the Validity of Efficient Market Hypothesis

2018 ◽  
Vol 56 (3) ◽  
pp. 369-387
Author(s):  
Miljan Leković
Keyword(s):  
Market Efficiency ◽  
Financial Market ◽  
Efficient Market Hypothesis ◽  
Strong Form ◽  
Efficient Market ◽  
Market Anomalies ◽  
Development Path

Abstract The concept of an efficient financial market, in literature known as efficient market hypothesis (EMH), has had a long and difficult development path from the idea itself to its final conception, as one of the central paradigms in modern finance. It has been tested and critically reviewed for decades, and the two basic types of problems it has encountered are theoretical paradoxes and market anomalies. The aim of the paper is to examine the validity of EMH through various financial market efficiency tests and the results of previous research. The intention is to answer the question of whether, despite theoretical paradoxes and market anomalies, the notion of validity can be attributed to the concept of an efficient financial market. In this regard, the paper presents plenty of evidence for and against the validity of weak, semi-strong, and strong form of EMH, to conclude that, even after more than half a century of research, financial literature has not reached a consensus on the presence or absence of the validity of this hypothesis.

scholarly journals Price overreactions in the cryptocurrency market

2019 ◽  
Vol 46 (5) ◽  
pp. 1137-1155 ◽  
Author(s):  
Guglielmo Maria Caporale ◽  
Alex Plastun
Keyword(s):  
Regression Analysis ◽  
Transaction Costs ◽  
Design Methodology ◽  
Efficient Market Hypothesis ◽  
Efficient Market ◽  
Price Changes ◽  
Content Type ◽  
Dummy Variables ◽  
Price Patterns ◽  
Non Parametric

Purpose The purpose of this paper is to examine price overreactions in the case of the following cryptocurrencies: bitcoin, litecoin, ripple and dash. Design/methodology/approach A number of parametric (t-test, ANOVA, regression analysis with dummy variables) and non-parametric (Mann–Whitney U-test) tests confirm the presence of price patterns after overreactions: the next day price changes in both directions are bigger than after “normal” days. A trading robot approach is then used to establish whether these statistical anomalies can be exploited to generate profits. Findings The results suggest that a strategy based on counter-movements after overreactions is not profitable, whilst one based on inertia appears to be profitable but produces outcomes not statistically different from the random ones. Therefore, the overreactions detected in the cryptocurrency market do not give rise to exploitable profit opportunities (possibly because of transaction costs) and cannot be seen as evidence against the efficient market hypothesis (EMH). Originality/value The overreactions detected in the cryptocurrency market do not give rise to exploitable profit opportunities (possibly because of transaction costs) and cannot be seen as evidence against the EMH.

Non-financial KPIs in annual report narratives: Australian practice

2019 ◽  
Vol 32 (1) ◽  
pp. 7-19 ◽  
Author(s):  
Lyndie Bayne ◽  
Marvin Wee
Keyword(s):  
Voluntary Disclosure ◽  
Annual Report ◽  
Performance Indicator ◽  
Preliminary Evidence ◽  
Annual Reports ◽  
Accounting Standard ◽  
Content Type ◽  
Financial Measures ◽  
Reporting Practices ◽  
Common Category

Purpose The purpose of this paper is to provide preliminary evidence on current practices in non-financial key performance indicator (KPI) reporting in annual reports by listed Australian companies to inform Australian legislators and accounting standard setters contemplating regulations and guidance for non-financial performance disclosure, including input into the revision of IFRS Practice Statement 1: Management Commentary (2010). Design/methodology/approach Non-financial KPIs were hand-collected from the annual report narratives of 40 listed Australian companies from five sectors in 2016. Trends in the type, quantity, comparability and range of non-financial KPIs were analysed, and the association between company characteristics and non-financial disclosure was explored. Findings In total, 78 per cent of the sampled companies disclose non-financial KPIs in their annual reports, reporting 11 non-financial KPIs per company on average. The most common category is Employee, followed by Environment, accounting for 68 per cent of non-financial KPIs. Provision of comparators is low, with only 28 per cent of non-financial KPIs disclosed with prior year results and 24 per cent disclosed with a target. Companies disclose across a median of two out of seven categories. Company size is shown to be associated with non-financial measures. Originality/value The study contributes initial detailed empirical Australian evidence of non-financial KPI reporting practices. A framework is established for assessing non-financial KPI disclosure, adding to voluntary disclosure studies. A data collection method is developed for collecting KPIs from annual report narratives, contributing to the methodology used in voluntary reporting content analysis.

scholarly journals CSR disclosure in response to major airline accidents: a legitimacy-based exploration

2016 ◽  
Vol 7 (1) ◽  
pp. 26-43 ◽  
Author(s):  
Petros Vourvachis ◽  
Thérèse Woodward ◽  
David G. Woodward ◽  
Dennis M Patten
Keyword(s):  
Annual Report ◽  
Annual Reports ◽  
Corporate Disclosure ◽  
Content Type ◽  
Social Legitimacy ◽  
Airline Accidents ◽  
Major Airlines ◽  
Csr Disclosure ◽  
Corporate Social ◽  
Practical Implications

Purpose – The purpose of this paper is to contribute to the literature investigating disclosure reactions to legitimacy threats by analyzing the corporate social responsibility (CSR) disclosure reactions to catastrophic accidents suffered by major airlines. Design/methodology/approach – The authors use content analysis to examine changes in annual report disclosure in response to four separate airline disasters. The authors adopt two classification schemes and two measurement approaches to explore these changes. Findings – The authors find that for three events the organizations appear to have responded with considerable increases in CSR disclosure that are consistent with attempts of legitimation. For one of the events examined, the authors find no disclosure response and suggest that this could be due to the company’s unwillingness to accept responsibility. Research limitations/implications – The study’s focus on major airlines that have suffered an accident with available annual reports in English meant that other companies had to be excluded from the analysis. Practical implications – The findings demonstrate the use of the annual report as a legitimation tool and further highlight the need for greater transparency and comparability across publications. Originality/value – The paper adds to the scarce literature examining corporate disclosure reactions following threats to their social legitimacy.

Relevance and evolution of adaptive markets hypothesis: a review

2016 ◽  
Vol 8 (3) ◽  
pp. 166-179 ◽  
Author(s):  
Raj S. Dhankar ◽  
Devesh Shankar
Keyword(s):  
Stock Market ◽  
Stock Markets ◽  
Design Methodology ◽  
Efficient Market Hypothesis ◽  
Efficient Markets ◽  
Informational Efficiency ◽  
Market Behavior ◽  
Efficient Market ◽  
Content Type ◽  
Dynamic Perspective

Purpose The purpose of this paper is to discuss the relevance and evolution of adaptive markets hypothesis (AMH) that has gained traction in the recent years, as it provides a dynamic perspective to the concept of informational efficiency. Design/methodology/approach This paper discusses several issues related to the concept of informationally efficient markets that have indicated efficient market hypothesis to be an incomplete portrayal of stock market behavior. Findings The authors find that a strict and perpetual adherence to informational efficiency is highly unlikely, and AMH provides a much more plausible description of the behavior of stock markets. Originality/value The authors provide a description of studies that examine the testable implications of AMH.

scholarly journals Intellectual capital reporting, leadership and strategic change

2016 ◽  
Vol 17 (1) ◽  
pp. 61-83 ◽  
Author(s):  
Richard Slack ◽  
Matthias Munz
Keyword(s):  
Intellectual Capital ◽  
Value Creation ◽  
Corporate Strategy ◽  
Annual Report ◽  
Strategic Change ◽  
Annual Reports ◽  
Future Research ◽  
Integrated Reporting ◽  
Leadership Change ◽  
Content Type

Purpose – A change in leadership can signal a shift in corporate strategy to drive future value creation. To help achieve this, a different emphasis may be placed upon the intellectual capital (IC) resources within the organisation. The purpose of this paper is to examine the changes in volume, composition and emphasis of IC disclosure in annual reports mapped against the re-orientation of corporate strategy and associated leadership change. Design/methodology/approach – A longitudinal period of over three decades (1979-2010) is examined. Adopting a case-based approach, Daimler AG is purposively selected for this research having a number of distinct changes in strategy over the period, reflective of leadership change. Using content analysis, annual report IC-related disclosures (structural, relational and human capital) by Daimler AG are examined, by category and more detailed sub-categories, against corporate strategy. Findings – The composition and emphasis of IC disclosures found in the annual reports changes over the longitudinal period and is reflective of the prevailing corporate strategy at that time. There were four identified periods of strategy, each associated with leadership change. The prevalence and qualitative focus of IC disclosures relevant to each period reflects the importance of respective IC components in corporate value creation. Research limitations/implications – The research is based on annual report IC disclosures within one case company and hence reflect the messages conveyed by that company over the longitudinal period. Additionally, the authors recognise that the annual report is only one source of corporate information, but as a historic record it serves to consistently capture management disclosure over a long-time period. Future research, adopting an econometric approach, could further test the linkages between leadership change, strategic shift and IC-related disclosure. Practical implications – The research reveals how IC-related disclosure shifts to reflect leadership and strategic change within a case company. Through such disclosure, the authors are able to gain greater insight into how a specific business seeks to create value drawing on the components of IC underpinning corporate strategy. Originality/value – The research provides new insights into IC disclosure by mapping its content and emphasis against changes in corporate strategy. This has contemporary significance due to the wider disclosure debate concerning strategy and value creation in the annual report, for instance through integrated reporting. Further, the research shows the value of annual reports for longitudinal disclosure research.

Volatility and efficiency of the world crude oil market

2015 ◽  
Vol 31 (1) ◽  
pp. 20-29
Author(s):  
Fawzan Abdul Aziz Al Fawzan
Keyword(s):  
Random Walk ◽  
Crude Oil ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Spot Price ◽  
Conditional Heteroskedasticity ◽  
Efficient Market ◽  
Content Type ◽  
Oil Market ◽  
Autoregressive Conditional Heteroskedasticity

Purpose – The purpose of this paper is to examine volatility and the weak-form efficient market hypothesis (random walk) of world spot crude oil market. Design/methodology/approach – The study uses the generalized autoregressive conditional heteroskedasticity (GARCH-M), exponential generalized autoregressive conditional heteroskedasticity (EGARCH), and threshold GARCH (TGARCH) models. The data are selected from three markets: Dubai Vetch (DV), West Texas Intermediate, and Europe Brent Spot Price. Findings – The weak-form efficient market (random walk) hypothesis was rejected for all estimated GARCH-M, EGARCH, and TGARCH models, indicating that these markets are inefficient and predictable. For daily data, the empirical results showed the presence of asymmetric effects, and the conditional variance process was found to be highly persistent. Originality/value – This study is unique in its nature as it examines three markets on three continents. In addition, one of these markets (DV) was not carried out by the previous study. This work takes into account the market location.

scholarly journals Company responses to demands for annual report changes

2018 ◽  
Vol 31 (6) ◽  
pp. 1593-1617 ◽  
Author(s):  
Thomas Riise Johansen ◽  
Thomas Plenborg
Keyword(s):  
Annual Report ◽  
Audit Committees ◽  
Annual Reports ◽  
Preparation Process ◽  
Regulatory Enforcement ◽  
Content Type ◽  
Barriers To Change ◽  
New Ideas ◽  
The Uk ◽  
User Orientation

Purpose The purpose of this paper is to examine how and the extent to which barriers to change inhibit new ideas about note disclosures to manifest themselves in annual reports. Design/methodology/approach The study employs regulation theory and draws on case studies in Denmark and the UK to understand compliance motivations and, on that basis, to identify the barriers to and enablers of changes to note disclosures in annual reports. Findings It is demonstrated how certain characteristics of the annual report preparation process can dampen the potential for change. It is also shown how preparer perceptions of oversight agents (auditors, enforcers, audit committees) have effects on disclosure behaviour. These characteristics appear to cause defensiveness among the actors involved in the process, inhibiting changes. In contrast, enablers are related to trust in regulatory enforcement, facilitation from enforcers, user orientation and shared understanding among functional groups involved in the preparation process. Practical implications The preparation of notes is susceptible to the influence of a range of factors, such as company politics, perceptions of enforcement styles and actors’ concerns about being blamed for inappropriate responses to regulation. These findings could be considered by regulators, auditors and preparers in enhancing understanding of their respective roles in the annual report preparation process. Originality/value This study illuminates the conditions that facilitate change when new ideas are introduced to a highly normative and detailed field. The study contributes to previous research by providing a fieldwork-based analysis of the practices, judgements, discussions and actors involved in the preparation of note disclosures.

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