Financial Statement Readability and Firm Debt Choice

Wajih Abbassi (), Hamdi Ben‐nasr, Sabri Boubaker () and Arman Eshraghi ()
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Wajih Abbassi: GUST - Gulf University for Science and Technology
Hamdi Ben‐nasr: Qatar University
Sabri Boubaker: Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School
Arman Eshraghi: Cardiff Business School - Cardiff University

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Abstract: Examining more than 16,000 firm-year observations in the United States, we provide novel evidence showing that higher financial statement readability leads to a decrease in information asymmetry and the need for external monitoring, thereby reducing the reliance on bank debt relative to public debt. Our channel tests show that information asymmetry, as measured by the bidask spread, partially mediates the relationship between readability and the bank debt ratio. Furthermore, cross-sectional tests demonstrate that information environment quality and financial constraints exacerbate the negative effect of readability on the bank debt ratio. Our results remain robust to a battery of additional tests. The study provides valuable insights for investors, firms, and regulators to improve transparency and market efficiency.

Keywords: Readability; Public debt; Monitoring; Information asymmetry; Bank loans (search for similar items in EconPapers)
Date: 2026-07
Note: View the original document on HAL open archive server: https://hal.science/hal-05652083v1
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Published in Financial Management, 2026, Summer, 55 (2), pp.229 - 250. ⟨10.1111/fima.70003⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05652083

DOI: 10.1111/fima.70003

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