Economic policy uncertainty, textual analysis of accounting annual reports and cost of equity: evidence from pre-COVID-19 and post-COVID-19 era

Arash Arianpoor and Mahdi Vafaee

Management Research Review, 2025, vol. 48, issue 7, 1064-1085

Abstract: Purpose - This study aims to investigate the textual analysis of accounting annual reports and the economic policy uncertainty (EPU) of the cost of equity for companies listed on the Tehran Stock Exchange (TSE). In addition, it explored the impact of the annual report readability on the cost of equity moderated by EPU. Design/methodology/approach - To this aim, information about 178 companies during 2014–2021 was examined. EPU was calculated based on the inflation rate, interest rate, exchange rate and economics growth. The industry-adjusted earnings price ratio (IndEP) and Gordon’s growth model were used for the cost of equity. Findings - The results showed that annual report readability has a negative impact on the cost of equity, while EPU has a positive impact. EPU significantly increases the negative impact of annual reports readability on the cost of equity. To further validate and check whether the findings are robust to COVID-19, a robustness check was used which confirmed the previous results. Originality/value - Empirical research fails to produce conclusive evidence about report readability and cost of equity capital, and the lack of consensus in the literature suggests that this effect remains an empirical question. There has been a significant increase in EPU globally, which can affect managers’ views about uncertain and complex tones especially in annual reports. Substantial work is yet to be done on the moderating role of EPU. This study fills the existing research gap. This paper has practical implications not only for firms and investors but also for policymakers.

Keywords: Economic policy uncertainty (EPU); Annual reports readability; Textual analysis; Accounting annual reports; Cost of equity; COVID-19 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:mrrpps:mrr-06-2023-0425

DOI: 10.1108/MRR-06-2023-0425

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