Department/School

Finance

Date of this version

2018

Document Type

Article

Keywords

Strategic alliance, Readability, 10-Ks, Annual reports

Abstract

We use strategic alliances as a setting to examine whether the readability of a firm’s partner’s 10-K matters. We find that the increase in the cumulative abnormal return (CAR) around the announcement of an alliance is relatively lower when the firm’s partner in a strategic alliance has a less readable 10-K report. Additional tests show that the impact of the readability of a partner’s 10-K is much stronger when investors suspect insufficient due diligence before the alliance’s formation, when the partner is from a different industry, and when the alliance occurs before the Sarbanes–Oxley Act. Overall, our results show that the readability of a partner’s annual report matters—it pays to partner with a firm that writes these reports well.

Volume

92

Published in

Journal of Banking and Finance

Citation/Other Information

92, 13-34

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