Words and numbers: a disagreement story from post-earnings announcement return and volume patterns

We examine whether disclosure readability affects investor disagreement following earnings announcements. Analyzing annual announcements by U.S.-listed firms between 2007 and 2018, we find that firms with lower disclosure readability experience higher unexplained trade volume and abnormal volatility after the announcement, consistent with low readability generating investor disagreement. We also show that financial analysts help alleviate the disagreement induced by low readability. Moreover, we document that low readability is unassociated with post-announcement returns, indicating that readability-driven disagreement spurs unexplained trade volume and volatility without affecting the aggregate market valuation. Overall, the results suggest that low disclosure readability increases stock-market investor disagreement.