Can An Annual Report’s Design Influence A Firm’s Valuation?
A recent study of the design of annual reports would indicate that their level of attractiveness directly affects a company's perceived valuation.
New York Times Magazine writer and author Rob Walker directed our attention to a recent study by the University of Miami School of Business (this writer’s alma matter) that evaluated the relative attractiveness of annual reports and their subsequent impact on that company’s perceived valuation. As reported by Science Daily, the study 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.’ So is there a correlation between the attractiveness of an annual report’s design and how investors value that company?
UM conducted a series of three studies among different participants: finance students, members of the general population, and experienced investors. Regardless of their indication that the design of an annual report would not significantly influence their valuation of a company – participants ultimately rated firms with more attractive reports higher (than firms with less attractive reports).
Additionally, 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.’ Specifically, the study among experienced investors suggested that including even just a single additional color throughout an annual report ‘would have the same impact on an investor’s firm ranking as a 20 percent improvement in revenue from the previous year.’
Granted, levels of ‘attractiveness’ can be subjective. To further evaluate how this was addressed, Walker contacted the study’s lead researcher, Claudia Townsend, who indicated that both real annual reports and mocked up versions were used in the study. The real annual reports were evaluated along quantifiable variables (number of colors, images included, etc.), as well as with an independent (blind) rating of aesthetics. The mock-ups were controlled for number of images and their depictions, number of colors, etc. — with only the overall aesthetics treated as variables.
We’ll consider these statistics valid support for the positive ROI of strong design.