Academic research finds that readable financial disclosures help not only investors, but companies as well.
The study, by Scott Asay of the University of Iowa, W. Brooke Elliott of the University of Illinois at Urbana-Champaign and Kristina M. Rennekamp of Cornell University, found that companies that try to obfuscate negative results with confusing jargon and presentation in their press releases can turn off investors. Instead, investors are more likely to turn to outside sources of information, such as financial analysts, for a clearer explanation of a company’s financial results.
To conduct the study, the professors created two versions of a press release about a fictitious sporting goods company with mixed financial results for the quarter. One version followed recommendations from the Securities and Exchange Commission for presenting financial results more clearly, while the other version did not.
The study appears in the July issue of the American Accounting Association's journal The Accounting Review.
Read the Accounting Today story here.