Accounting and Auditing Studies

Accounting and Auditing Studies

Investigating the Effect of Readability of Annual Financial Reports on the Cost of Equity with the Moderating Role of Reporting Tone

Document Type : Original Article

Authors
Mohammad Heidari 1
Omid Shourjeh 2
1 Accounting Department, Islamic Azad University, Hedage, Iran
2 Master’s student, management accounting, Raja Qazvin University, Iran
10.22034/iaas.2024.216992
Abstract
The purpose of this study is to investigate the effect of the readability of annual financial reports on the cost of equity with the moderating role of reporting tone. In this study, the readability of financial reports using four criteria of diani flesh, document length index, file size and number of pages of annual reports and reporting tone were evaluated based on a list of vague and negative words. In this regard, sample data consisting of153 firms listed on the Tehran Stock Exchange were collected over a period of 10 years from 2011 to 2020 and hypotheses were tested using econometric techniques based on panel data and Eviews software. The findings of the study showed that the criteria of file size and number of pages of financial reports play an important role in determining the cost of equity and with increasing these textual features of annual financial reports, also increases the cost of equity. In addition, it was examined whether the nature of the relationship between the readability of financial statements and the cost of equity depends on the reporting tone, and it was found that a negative and unceratain reporting tone reinforces the positive effect of file size and number of pages of financial statements on equity cost. In general, the findings of this study support the argument that the readability of financial statements, especially file size and number of pages of financial reports are important in the pricing of capital by investors in the Iranian capital market.
Keywords
Readability of Annual Reports
Cost of Equity
Reporting Tone
Diani Flesh Criteria
File Size
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Accounting and Auditing Studies
Volume 13, Issue 52
Autumn 2024
Pages 203-218