Seeing is Believing : Annual Report 'Graphicity' and Stock Returns Predictability

Using a large hand-collected dataset, we provide novel evidence on the additional information embedded in the designs and graphs of financial reports. We find that firms that add graphic financial reports experience a positive 2.7% abnormal returns in the following 3 to 6 months. The finding remains after controlling for financial market constraints, investor sophistication, and information asymmetry. We also develop a theoretical model to explain the result. Further analysis reveals that firms with lower accruals, larger size, and higher Fog index tend to add graphic information, and they are likely to increase their corporate investments in the following year