CEO left-handedness and readability

Abstract

We examine the relationship between CEO handedness and readability of narrative disclosures in the management discussion and analysis (MD&A) sections of annual reports. Using a sample of U.S. S&P 500 firms, we find that firms run by left-handed CEOs generally tend to produce more readable MD&A than their counterparts. Cross-sectional testing shows that the association between left-handed CEOs and MD&A readability is more pronounced for firms with complex business operations, suggesting that the readability-handedness relation is moderated by the firm's characteristics related to the need for more communication abilities. Further analyses provide evidence that MD&A readability is a significant channel through which left-handed CEOs decrease costs of equity capital and increase earnings quality. Overall, our findings support the conjecture that left-handed CEOs tend to possess enhanced communication abilities, highlighting a novel personal characteristic that can offer valuable insights into a firm's information environment.