Financial statement readability and firm debt choice

Abbassi, Wajih, Nasr, Hamdi Ben, Boubaker, Sabri and Eshraghi, Arman ORCID: https://orcid.org/0000-0002-7406-1725 2025. Financial statement readability and firm debt choice. Financial Management Item availability restricted.

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Abstract

Examining more than 16,000 firm-year observations in the U.S., 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.

Item Type:	Article
Status:	In Press
Schools:	Schools > Business (Including Economics)
Publisher:	Wiley
ISSN:	0046-3892
Date of First Compliant Deposit:	29 July 2025
Date of Acceptance:	25 July 2025
Last Modified:	29 Jul 2025 12:00
URI:	https://orca.cardiff.ac.uk/id/eprint/180089

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