Do Images Provide Relevant Information to Investors? An Exploratory Study

We develop novel machine learning algorithms to construct metrics of visual readability in firms' annual reports. Firms increase their use of imagery content when there is more news coverage and greater asset growth during the year. Consistent with improvements in the information environment, an increase in the use of imagery content is associated with lower risk, lower cost of capital, and higher bond ratings during the subsequent year. Firms also experience an increase in their institutional investor base, gain higher market share, and report a higher ROA. The degree to which the imagery content reinforces the textual narrative in the annual reports is associated with lower analyst disagreement and greater forecast accuracy. We do not find evidence of short-term market price overreactions. Our results are more consistent with an information story than with hype.