Does government report readability matter? Evidence from market reactions to AAERs

Yu Flora Kuang, Gladys Lee, Bo Qin

Research output: Contribution to journalArticleResearchpeer-review

5 Citations (Scopus)


We investigate whether market reactions to Accounting and Auditing Enforcement Releases (AAERs) of the U.S. Securities and Exchange Commission (SEC) vary with different levels of readability in the AAERs. After controlling for the complexity of an AAER report and the severity of the enforcement case, we find that when the AAER is more difficult to read, with readability measured based on the directives of the Plain Writing Act of 2010, markets react more negatively to the AAER announcement. Cross-sectional tests indicate that the effect of AAER readability is attenuated by investor sophistication and firm visibility, whereas the effect is more pronounced when AAER firms are exposed to greater uncertainty. Contrary to conventional wisdom that linguistically complex disclosures receive reduced market reactions, our results suggest that complex AAER announcements could trigger more negative stock price reactions, since investors under uncertainty and ambiguity tend to assume the worst and bid down the market value of AAER firms. Our study offers meaningful implications for regulators concerned with writing clarity in government documents.

Original languageEnglish
Article number106697
Number of pages20
JournalJournal of Accounting and Public Policy
Issue number2
Publication statusPublished - Mar 2020
Externally publishedYes


  • Disclosure readability
  • Government document
  • Market reaction
  • Plain Writing Act
  • Textual analysis

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