A University of Michigan study published in September is making a very strong case for companies to focus on the readability of their 10-K. (The Effect of Annual Report Readability on Analyst Following and the Properties of Their Earnings Forecasts)
The study draws the conclusion that:
“… Our overall findings that lower readability is associated with greater levels of analyst coverage, effort, and information content, but with lower accuracy, higher dispersion, and greater uncertainty of their earnings forecasts complements and contributes to the literature on how analysts respond to firms’ disclosure. … “
Adding investor relations to a company’s 10-K “team” is one of the most obvious ways to close the readability gap, while accomplishing other important objectives. Investor relations practitioners should know the strategic message. They also should be experienced at making complex financial topics understandable and putting them in context.
In a July post, I noted:
“One of the best opportunities companies have to create efficiencies in the communications process is by being consistent — making strategic use of their required (and time-consuming) SEC filings and leveraging that time to simplify development of other communications. Plus, investors read the SEC filings, and trade on the information they contain. Investors rely on the filings whether or not those documents share the strategic messages contained in presentations, news releases and other written and verbal communications.”
That July post (SEC Stresses Consistency) also transcribed comments on this topic by Meredith Cross, Director, SEC Division of Corporation Finance.