Handsome annual reports cause investors to value company higher

August 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: Stock Price Correlated to Likeability of Super Bowl Ads

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

Related Stories

Stock Price Correlated to Likeability of Super Bowl Ads

January 29, 2008

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

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

January 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

April 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 and success ...

Some firms benefit from increased spending despite recession

December 22, 2010

During recessions, increased spending on research and development and on advertising can benefit certain types of firms and punish others, according to researchers, who identified the firm types that spend most effectively.

Recommended for you

Just how good (or bad) is the fossil record of dinosaurs?

August 28, 2015

Everyone is excited by discoveries of new dinosaurs – or indeed any new fossil species. But a key question for palaeontologists is 'just how good is the fossil record?' Do we know fifty per cent of the species of dinosaurs ...

Fractals patterns in a drummer's music

August 28, 2015

Fractal patterns are profoundly human – at least in music. This is one of the findings of a team headed by researchers from the Max Planck Institute for Dynamics and Self-Organization in Göttingen and Harvard University ...

0 comments

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.