The Relation between the Readability of Accounting Footnotes Information and the Company Value of the Appraisal Reports of Public Tender Offer in Brazil

Abstract

We studied the relation between the Accounting footnotes readability and company value, using five metrics to measure readability: word, sentence, and paragraph lengths, numbers of graphic elements and pages. To obtain the company value, we used appraisal reports of public tender offer to acquire shares from the last nine years, which got to a 90 Brazilian company sample. The methods analyzed were: discounted cash flow, market price of shares after the public tender offer announcement, multiples, and equity book value. The results showed a high correlation between the sentence length and all four valuation methods, while the OLS multiple regression showed a relation between the footnote readability component that included word and sentence lengths and company valuation by DCF and equity methods. The other indexes showed no relation to the company value, except when we use the share price before the announcement as a control variable, then, it becomes significant for the equity method.