Transformations  in
Business & Economics

READABILITY OF ANNUAL REPORT AND INEFFICIENT INVESTMENT: EVIDENCE FROM DEBT FINANCING
Yuliang Zhao, Fengyu Liu, Changyue Liu, Muhammad Usman, Kumar Debasis Dutta

ABSTRACT. The readability of annual reports of enterprises can reflect transparency of financial information to some extent, which provides a basis for the judgment of shareholders participating in enterprise investment decisions. Inefficient investment is inevitable in enterprise investment. To explore the inefficient investment of enterprises from the perspective of readability of the annual report, the effects of readability of the annual report of Chinese A-share listed companies in the Shanghai Stock Exchange and the Shenzhen Stock Exchange were discussed based on data of selected A-share listed companies from 2008 to 2016. Results demonstrate that the readability of annual report is negatively correlated with the inefficient investment of enterprises. Thus, increasing readability of annual report reduces the inefficient investment of enterprises. Readability of annual report decreases inefficient investment of enterprises through debt financing. Moreover, the heterogeneity of enterprises that increases the readability of annual reports can decrease the inefficient investment of non-state-owned listed companies with low financial transparency. In view of the external market environment, if listed companies are in regions with good relations between government and market, the readability of annual reports can decrease the inefficient investment of enterprises. After annual reports audited by the same accounting form are used as instrumental variables, the above conclusions remain the same. Furthermore, this study provides empirical evidence of the influences of the readability of annual reports on inefficient investment. The conclusions have important references to investors and listed companies .

KEYWORDS:  readability of annual report, inefficient investment, debt financing.

JEL classification:  D21, D82, G31.