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Readability of narrative disclosures, and corporate liquidity and payout policies

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  • Hasan, Mostafa Monzur
  • Habib, Ahsan

Abstract

In this paper, we examine the relation between the readability of narrative disclosures in 10-K reports, and corporate liquidity and payout policies. We find that firms with less readable disclosures hold significantly more cash. We also find that this relationship is stronger for firms with weak corporate governance, and with higher financing constraints and refinancing risks. Further analysis also shows that firms with less readable disclosures pay fewer cash dividends and repurchase less stock. Our findings are robust to different estimation methods, and to alternative specifications of key variables. The findings from this study contribute to the emerging research that stresses the importance of 10-K report readability in protecting shareholder wealth.

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  • Hasan, Mostafa Monzur & Habib, Ahsan, 2020. "Readability of narrative disclosures, and corporate liquidity and payout policies," International Review of Financial Analysis, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:finana:v:68:y:2020:i:c:s1057521919302583
    DOI: 10.1016/j.irfa.2020.101460
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    More about this item

    Keywords

    Readability of narrative disclosures; Cash holdings; Payout policy;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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