The Relationship Between Financial Report Readability and Financial Reporting Quality with Emphasis on the Role of Information Asymmetry
Keywords:
Readability of annual reports, quality of financial reporting, information asymmetryAbstract
Information serves as the primary resource for stakeholders' decision-making. The greater the readability and quality of information, and the lower the information asymmetry, the easier and more effective the decision-making process becomes for stakeholders. In this context, the present study aims to examine the relationship between the readability of financial reports and the quality of financial reporting, with a particular emphasis on the role of information asymmetry, in the Tehran Stock Exchange between 2016 and 2022. Financial reporting quality was assessed using the Dechow and Dichev model, while the readability of annual reports was measured using the FOG index. Information asymmetry was evaluated from the adverse selection perspective based on the model of Venkatesh and Chiang (1986), and from the moral hazard perspective based on the model of Abdi Golzar et al. (2021). The research hypotheses were tested using data from 129 companies through least squares regression analysis using Stata software, version 17. The findings indicated a significant and direct relationship between the readability of annual reports and the quality of financial reporting. Information asymmetry, from the adverse selection perspective, weakens the positive relationship between financial report readability and financial reporting quality, while moral hazard does not have a significant impact on this relationship.
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