Handsome annual reports cause investors to value company higher

Aug 23, 2011

As firms begin the 2011 annual report process, which many do at this time of year, they may want to pay closer attention to the way those reports look. A recent study out of the University of Miami School of Business Administration found that investors, regardless of their experience, place a higher value on firms with attractive annual reports than they do on those that produce less attractive reports. The study found that annual reports that utilize more color are perceived to have at least one percent higher annual revenues than those with lackluster designs.

"The role of aesthetics in like those you'd find on store shelves has been widely studied, but our research is novel in that we look at this effect in the extreme context of financial decision-making and what we find is just how boundless the role of aesthetics can be," said Claudia Townsend, assistant professor of marketing at the University of Miami School of Business Administration, who conducted the research with Suzanne Shu of the UCLA Anderson School of Management. "Better-looking documents produce increased pride of ownership for a company, and this pride increases valuation. People are not aware of the effect of aesthetics on their financial decisions and we found that when their attention was drawn to this issue they were able to overcome the and make wiser investments."

Researchers conducted a series of three studies: one with finance students, one with members of the general population, and one with more experienced investors. in each study indicated that the design of a firm's annual report would be of little significance in their valuation of a company. But after reviewing the first few pages and/or a sampling of annual reports, participants rated firms with more attractive reports higher than those with less attractive reports. Specifically:

  • In the student study, in which participants were given the first three pages of two annual reports with the same , the students priced the stock shares of a firm with the more attractive annual report nearly 70 percent higher than shares of a firm with the less attractive report.
  • In the general population study, respondents gave the product of a company with a more attractive annual report an average rating of 5.08 on a seven-point scale versus a rating of 4.79 for the product of a company with a less attractive annual report.
  • In the study involving experienced investors, in which participants were asked to rank companies based on how likely they would be to invest in those firms, the findings suggested that including an additional color throughout a firm's annual report would have the same impact on an investor's firm ranking as a 20 percent improvement in revenue from the previous year.
"The implications of these findings should point in the direction of good graphic designers," added Townsend. "After all, it is a lot easier to add color to a printed piece of paper than to add revenue to a company's bottom line."

Explore further: Narcissistic CEOs and financial performance

More information: The research paper can be found online at www.sciencedirect.com/science/… ii/S1057740810000677

add to favorites email to friend print save as pdf

Related Stories

Green firms rewarded by financial markets

May 29, 2008

When a company improves its environmental performance, it is common to think that the accompanying economic improvements are based on the company's more efficient use of resources. However,

Stock Price Correlated to Likeability of Super Bowl Ads

Jan 26, 2009

(PhysOrg.com) -- When TV viewers like a company's Super Bowl commercial, the company's stock price goes up, according to a study by researchers at the University at Buffalo School of Management and Cornell University.

CEOs who look the part earn more

Apr 26, 2010

(PhysOrg.com) -- There were no evening gowns, swimsuits, or artistic talents on display, but a corporate beauty contest staged by Duke University researchers nevertheless revealed strong ties between appearance ...

Recommended for you

How science can beat the flawed metric that rules it

39 minutes ago

In order to improve something, we need to be able to measure its quality. This is true in public policy, in commercial industries, and also in science. Like other fields, science has a growing need for quantitative ...

Decoding ethnic labels

1 hour ago

If you are of Latin American descent, do you call yourself Chicano? Latino? Hispanic?

Local education politics 'far from dead'

22 hours ago

Teach for America, known for recruiting teachers, is also setting its sights on capturing school board seats across the nation. Surprisingly, however, political candidates from the program aren't just pushing ...

First grade reading suffers in segregated schools

22 hours ago

A groundbreaking study from the Frank Porter Graham Child Development Institute (FPG) has found that African-American students in first grade experience smaller gains in reading when they attend segregated schools—but the ...

Violent aftermath for the warriors at Alken Enge

23 hours ago

Denmark attracted international attention in 2012 when archaeological excavations revealed the bones of an entire army, whose warriors had been thrown into the bogs near the Alken Enge wetlands in East Jutland ...

Why aren't consumers buying remanufactured products?

Jul 29, 2014

Firms looking to increase market share of remanufactured consumer products will have to overcome a big barrier to do so, according to a recent study from the Penn State Smeal College of Business. Findings from faculty members ...

User comments : 0