Greenberg: Analysts Err When Firms Muddy the Waters

This you gotta love—especially as we head into earnings season.

A study by a few accounting professors at the University of Michiganshows that analyst reports for companies whose 10-Ks are hard to read might be more informative, but they are associated with “greater dispersion, lower accuracy, and greater overall uncertainty in earnings forecasts.”

The study appears in the May issue of the Accounting Review, which is published by the American Accounting Association.

And it wasn't just some fly-by-night research: It measured the readability of more than 33,700 observations of 10-K filings from 1995 to 2006.

And (my favorite part) it was based on a linguistics technology that counts the number of syllables per word and number of complex words per sentence.

According to the report, with these complicated 10-Ks not only are the data less accurate, but they are also more costly to process and interpret.

But for analysts, complicated equals a full employment act.

All of which is worth keeping in mind as the SEC tries to get companies to write their reports in plain English.

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