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Financial Statement Readability and Firm Debt Choice

Wajih Abbassi, Hamdi Ben‐Nasr, Sabri Boubaker Orcid Logo, Arman Eshraghi

Financial Management

Swansea University Author: Sabri Boubaker Orcid Logo

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DOI (Published version): 10.1111/fima.70003

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....

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Published in: Financial Management
ISSN: 0046-3892 1755-053X
Published: Wiley 2025
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URI: https://cronfa.swan.ac.uk/Record/cronfa70187
first_indexed 2025-08-15T14:21:00Z
last_indexed 2025-08-16T05:30:08Z
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spelling 2025-08-15T15:24:41.3199194 v2 70187 2025-08-15 Financial Statement Readability and Firm Debt Choice 43999fff86cd8a29f4815fb4dfa47729 0000-0002-6416-2952 Sabri Boubaker Sabri Boubaker true false 2025-08-15 CBAE 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 bid–ask 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. Journal Article Financial Management 0 Wiley 0046-3892 1755-053X bank loans, information asymmetry, monitoring, public debt, readability 14 8 2025 2025-08-14 10.1111/fima.70003 COLLEGE NANME Management School COLLEGE CODE CBAE Swansea University Another institution paid the OA fee Hamdi Ben-Nasr acknowledges financial support from Qatar University through the internal grant “IRCC-2024-005”. 2025-08-15T15:24:41.3199194 2025-08-15T15:16:20.3865050 Faculty of Humanities and Social Sciences School of Management - Accounting and Finance Wajih Abbassi 1 Hamdi Ben‐Nasr 2 Sabri Boubaker 0000-0002-6416-2952 3 Arman Eshraghi 4 70187__34959__595a45504302437fb603b3d2e16f9936.pdf fima.70003.pdf 2025-08-15T15:16:20.3617018 Output 453390 application/pdf Version of Record true © 2025 The Author(s). Financial Management published by Wiley Periodicals LLC on behalf of Financial Management Association International. This is an open access article under the terms of the Creative Commons Attribution License (CC BY). true eng http://creativecommons.org/licenses/by/4.0/
title Financial Statement Readability and Firm Debt Choice
spellingShingle Financial Statement Readability and Firm Debt Choice
Sabri Boubaker
title_short Financial Statement Readability and Firm Debt Choice
title_full Financial Statement Readability and Firm Debt Choice
title_fullStr Financial Statement Readability and Firm Debt Choice
title_full_unstemmed Financial Statement Readability and Firm Debt Choice
title_sort Financial Statement Readability and Firm Debt Choice
author_id_str_mv 43999fff86cd8a29f4815fb4dfa47729
author_id_fullname_str_mv 43999fff86cd8a29f4815fb4dfa47729_***_Sabri Boubaker
author Sabri Boubaker
author2 Wajih Abbassi
Hamdi Ben‐Nasr
Sabri Boubaker
Arman Eshraghi
format Journal article
container_title Financial Management
container_volume 0
publishDate 2025
institution Swansea University
issn 0046-3892
1755-053X
doi_str_mv 10.1111/fima.70003
publisher Wiley
college_str Faculty of Humanities and Social Sciences
hierarchytype
hierarchy_top_id facultyofhumanitiesandsocialsciences
hierarchy_top_title Faculty of Humanities and Social Sciences
hierarchy_parent_id facultyofhumanitiesandsocialsciences
hierarchy_parent_title Faculty of Humanities and Social Sciences
department_str School of Management - Accounting and Finance{{{_:::_}}}Faculty of Humanities and Social Sciences{{{_:::_}}}School of Management - Accounting and Finance
document_store_str 1
active_str 0
description 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 bid–ask 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.
published_date 2025-08-14T05:26:42Z
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score 11.090091

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