Investigating the Mediating Effect of Financial Reporting Readability on the Relationship between Earnings Management and Cost of Capital

Objective: The aim of this study is to examine the mediating role of financial reporting readability in the relationship between earnings management and cost of capital. Method: To assess the readability of financial reporting, FOG and text length indices were used, and to measure earnings managemen...

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Autores principales:	Iman Dadashi (Ph.D), Mohammad Norouzi (Ph.D)
Formato:	article
Lenguaje:	FA
Publicado:	Shahid Bahonar University of Kerman 2020
Materias:	financial reporting readability cost of capital profit management fog index text length index Accounting. Bookkeeping HF5601-5689
Acceso en línea:	https://doaj.org/article/76290c0454e54c26813a04fcfd3058e3
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spelling	oai:doaj.org-article:76290c0454e54c26813a04fcfd3058e32021-11-04T19:55:28ZInvestigating the Mediating Effect of Financial Reporting Readability on the Relationship between Earnings Management and Cost of Capital2008-89142476-292X10.22103/jak.2020.11718.2629https://doaj.org/article/76290c0454e54c26813a04fcfd3058e32020-04-01T00:00:00Zhttps://jak.uk.ac.ir/article_2507_8a27c102281df4efe70958a8c6dcbca6.pdfhttps://doaj.org/toc/2008-8914https://doaj.org/toc/2476-292XObjective: The aim of this study is to examine the mediating role of financial reporting readability in the relationship between earnings management and cost of capital. Method: To assess the readability of financial reporting, FOG and text length indices were used, and to measure earnings management and capital costs, the modified Jones model (2002) and Gordon growth model were used, respectively. The data of 68 companies listed in the Tehran Stock Exchange during the years 1390 to 1396 were studied. Results: Findings indicated that Financial Reporting Readability, including FOG and text length indices, has complete mediation effect on the relationship between earnings management and cost of capital. Conclusion: Based on opportunistic profit management approach, companies publish complex financial reports with low readability to hide opportunistic behavior of managers and reduce the ability of investors, financial analysts and other legal entities to disclose opportunistic behavior. On the other hand, lower readability of financial reporting and more complexity in exposing opportunistic behavior increase asymmetric information and reduce investors' awareness and inference about company's future performance, making investors unable to interpret annual financial reports.Therefore, companies with more ambigious annual report should take higher risks that increase their cost of capital.Iman Dadashi (Ph.D)Mohammad Norouzi (Ph.D)Shahid Bahonar University of Kermanarticlefinancial reporting readabilitycost of capitalprofit managementfog indextext length indexAccounting. BookkeepingHF5601-5689FAمجله دانش حسابداری, Vol 11, Iss 1, Pp 135-157 (2020)
institution	DOAJ
collection	DOAJ
language	FA
topic	financial reporting readability cost of capital profit management fog index text length index Accounting. Bookkeeping HF5601-5689
spellingShingle	financial reporting readability cost of capital profit management fog index text length index Accounting. Bookkeeping HF5601-5689 Iman Dadashi (Ph.D) Mohammad Norouzi (Ph.D) Investigating the Mediating Effect of Financial Reporting Readability on the Relationship between Earnings Management and Cost of Capital
description	Objective: The aim of this study is to examine the mediating role of financial reporting readability in the relationship between earnings management and cost of capital. Method: To assess the readability of financial reporting, FOG and text length indices were used, and to measure earnings management and capital costs, the modified Jones model (2002) and Gordon growth model were used, respectively. The data of 68 companies listed in the Tehran Stock Exchange during the years 1390 to 1396 were studied. Results: Findings indicated that Financial Reporting Readability, including FOG and text length indices, has complete mediation effect on the relationship between earnings management and cost of capital. Conclusion: Based on opportunistic profit management approach, companies publish complex financial reports with low readability to hide opportunistic behavior of managers and reduce the ability of investors, financial analysts and other legal entities to disclose opportunistic behavior. On the other hand, lower readability of financial reporting and more complexity in exposing opportunistic behavior increase asymmetric information and reduce investors' awareness and inference about company's future performance, making investors unable to interpret annual financial reports.Therefore, companies with more ambigious annual report should take higher risks that increase their cost of capital.
format	article
author	Iman Dadashi (Ph.D) Mohammad Norouzi (Ph.D)
author_facet	Iman Dadashi (Ph.D) Mohammad Norouzi (Ph.D)
author_sort	Iman Dadashi (Ph.D)
title	Investigating the Mediating Effect of Financial Reporting Readability on the Relationship between Earnings Management and Cost of Capital
title_short	Investigating the Mediating Effect of Financial Reporting Readability on the Relationship between Earnings Management and Cost of Capital
title_full	Investigating the Mediating Effect of Financial Reporting Readability on the Relationship between Earnings Management and Cost of Capital
title_fullStr	Investigating the Mediating Effect of Financial Reporting Readability on the Relationship between Earnings Management and Cost of Capital
title_full_unstemmed	Investigating the Mediating Effect of Financial Reporting Readability on the Relationship between Earnings Management and Cost of Capital
title_sort	investigating the mediating effect of financial reporting readability on the relationship between earnings management and cost of capital
publisher	Shahid Bahonar University of Kerman
publishDate	2020
url	https://doaj.org/article/76290c0454e54c26813a04fcfd3058e3
work_keys_str_mv	AT imandadashiphd investigatingthemediatingeffectoffinancialreportingreadabilityontherelationshipbetweenearningsmanagementandcostofcapital AT mohammadnorouziphd investigatingthemediatingeffectoffinancialreportingreadabilityontherelationshipbetweenearningsmanagementandcostofcapital
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Investigating the Mediating Effect of Financial Reporting Readability on the Relationship between Earnings Management and Cost of Capital

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