Does Annual Report Readability Influence the Design of Seos?

Motivated by the increasing growth in both non-quantitative corporate disclosure and seasoned equity offerings (SEOs) in the US, we take a fresh look at the accelerated offering decision in SEOs, with a specific focus on readability of annual reports in 10-K filings. Using a sample of 2,520 instances of seasoned equity issues between 2002 and 2017, we document a significantly positive relation between readability score and accelerated offerings. Our results hold across various robustness tests. We further show a negative relation between abnormal operating performance and post-announcement long-term stock performance, demonstrating that the information of SEOs regarding future earnings is reflected in the long-term reaction. Overall, our evidence strongly suggests that readability of reports wields a great influence on the design of SEOs, emphasising the importance of brief and concise disclosure of financial statements because it is crucial how information is transmitted to the markets is critical