The value of information risk: is there an acquisition discount for less readable financial disclosures?

The readability of financial disclosures plays a crucial role in how firms effectively communicate value-relevant information to the market. This study investigates the association between readability and firm valuation within the context of takeovers. We find that target firms with less readable annual reports receive lower bids and earn lower announcement returns. Our findings suggest that both acquirers and the market discount opaque targets, especially in inter-industry acquisitions, where adverse selection is more severe compared to intra-industry deals.