Measuring Readability in Financial Text

Abstract

We examine readability of company disclosures by applying three different measures to a large sample of 10-Ks during 1994-2007. Our benchmark for readability is the assumption that better written 10-Ks are more informative to the market. We identify substantial measurement issues when using traditional readability measures such as the Fog Index in the context of business text. Our readability measure, derived from SEC documentation surrounding the plain English initiative, appears to better capture text informativeness when compared with traditional measures that were originally designed to identify textbook grade levels. We find significant relations between improved 10-K readability and increased small investor trading, the likelihood of seasoned equity issuance, and better corporate governance.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 31 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.