Individual Investors Perceptions On The Summary Annual Report: A Survey Approach

Abstract

As the role of institutional investors is being transformed, there is a tendency to overlook the needs of individual investors. Nevertheless, there are well over 30 million individual investors in the United States, and these numbers are growing rapidly. One area of particular concern is corporate communications. All investors, professional as well as non-professionals, should have access to financial information. However, annual reports, as currently issued, are often difficult to read and understand, and therefore lack communication value. A possible solution is the summary annual report (SAR), which has been designed to condense and simplify the traditional GAAP statements. To date, most U.S. Corporations have not adopted the new format, in part, out of a fear of negative shareholder reaction. Our survey results clearly indicate that annual reports, as they are currently issued, are difficult to understand for a sizeable minority of investors. One out of 4 investors reported that annual reports were so difficult to understand that they were of no substantial help in making investment decisions. Further, results show that a majority of respondents demand inclusion of further explanation of the financial information in less technical terms, and over a third would like to see SARs to the exclusion of full GAAP reports. Through the SAR, management has an opportunity to significantly improve corporate communications. WE strongly recommend that management continues to experiment with its format, design, and content.