Pen is Mightier than the Word: Does Annual Report Writing Matter to Investors and Managers? Evidence from Exogenous Shock

This dissertation examines the causal relation between writing style of annual reports and related capital market outcomes and managerial decision quality. Using a sample of South African firms that adopted Integrated Reporting (IR) under the mandate issued in 2010, I demonstrate that adoption of IR leads to an increase in absolute three-day CAR surrounding the filing, and a reduction in stock price delay. Using a manually coded measure of connectivity of information, I show that IR makes it easier for investors to process the information contained in annual reports by integrating various pieces of information through the principle of connectivity. I also document an improvement in managerial decision quality post the adoption of IR. I contribute to the literature by providing a direct causal evidence of influence of report writing style on investor response to these disclosures. Additionally, I document real effects of disclosure regulations on managerial decision making despite an absence of change in underlying accounting fundamentals.