Annual report \Graphicity\" and stock returns (Discussion Paper 2018-08)"

Prior literature finds information content in the text of 10-K filings. Using a large hand collected dataset, we provide the novel evidence on the additional information embedded in the designs and graphs of financial reports. We find that firms with lower accruals, larger size, and higher Fog index tend to add graphic information to the standard financial reports in addition to SEC standard 10-Ks. Interestingly, we find that firms who added graphic financial reports experienced a positive 2.7% abnormal returns after the graphic financial reports is released for 3 to 6 months. The finding remains robust after controlling for financial market constraints, investor sophistication, and information asymmetry. Further tests suggest that the new graphic information is additional soft information that the companies try to deliver, rather than "hardening" the existing numbers in the 10-Ks. This result suggests that corporate insiders try to employ better designed financial reports to deliver important soft information about their fundamentals, and it is still a challenge for the market to integrate the additional information in the graphic financial reports to stock prices timely and accurately.