Abstract

https://ssrn.com/abstract=2538251
 


 



The Effect of Annual Report Readability on Cost of Debt


Xiaohua Fang


Georgia State University - J. Mack Robinson College of Business

Yutao Li


University of Lethbridge

Baohua Xin


University of Toronto - Rotman School of Management

Wenjun Zhang


Dalhousie University

December 14, 2014

2015 Canadian Academic Accounting Association (CAAA) Annual Conference

Abstract:     
This study examines whether and how borrowing firms’ financial statement readability affects the contracting features of syndicated loans. Using a sample of loans issued by U.S. public firms in the syndicated loan market over the period 1994-2007, we find strong evidence that firms producing more difficult-to-read annual reports incur higher cost of debt proxied by private loan yield spread. Our results are consistent with the view that annual report readability reduces information processing costs to creditors. In addition, the association between readability and cost of borrowing is more pronounced for firms with weak governance and firms with low relationship intensity.

Keywords: debt contracting, loan syndication, financial statement readability

JEL Classification: G12, G14, M41


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Date posted: December 15, 2014  

Suggested Citation

Fang, Xiaohua and Li, Yutao and Xin, Baohua and Zhang, Wenjun, The Effect of Annual Report Readability on Cost of Debt (December 14, 2014). 2015 Canadian Academic Accounting Association (CAAA) Annual Conference. Available at SSRN: https://ssrn.com/abstract=2538251 or http://dx.doi.org/10.2139/ssrn.2538251

Contact Information

Xiaohua Fang
Georgia State University - J. Mack Robinson College of Business ( email )
P.O. Box 4050
Atlanta, GA 30303-3083
United States
404-413-7235 (Phone)
Yutao Li
University of Lethbridge ( email )
Lethbridge, Alberta T1K5E8
Canada
Baohua Xin
University of Toronto - Rotman School of Management ( email )
105 St. George Street
Toronto, Ontario M5S 3E6
Canada

Wenjun Zhang (Contact Author)
Dalhousie University ( email )
Halifax
Canada
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