Speakers
Description
Financial reporting is a fundamental tool in the faithful reflection of a company's activity, holding a dominant position in the information infrastructure of modern and efficient economies. Annual reports published by companies include both quantitative information and narrative components, designed to provide a comprehensive picture of companies' performance and financial position. The quality of financial reporting directly influences share price informativeness, playing a key role in predicting future returns of companies. This study focuses on two aspects of informational quality: faithful representation and readability of annual reports, as predicting factors of investment decisions. By measuring the market reaction based on stock market returns (annual and cumulative abnormal returns), the results suggest that investors are more concerned about the accurate representation of financial results both at the time of financial statements release and in the long term. However, the degree of understandability of financial information plays an insignificant role in the process of making investment decisions. The sample analyzed covers 49 companies listed on the Bucharest Stock Exchange during a seven-year period. Their annual reports are defined by complex vocabulary and extensive length, which increase processing costs and delay share price adjustments. Our findings suggest that the primary audience for these documents is financial professionals (financial analysts) or institutional investors with advanced education, as the way information is presented is detrimental to individual investors or users without financial expertise. In addition, we have divided the analyses into two distinct periods—characterized by economic instability (post-pandemic crisis) and normal operating conditions (pre-pandemic crisis). This study evaluates the readability degree and conciseness of financial reports based on notorious indexes in the specialized literature (FOG index, Flesch-Kincaid index, Flesch Reading Ease Score, and report length), being useful in future research on the Romanian capital market's reaction to financial information quality.
