The Effect of Readability of Annual Reports and Value Relevance of Financial Information on Agency Costs with Analyst Coverage as Moderating Variable

Abstract

This study aims to determine the effect of readability based on the length of the annual report and the value relevance of the financial information on agency costs. The sample used in this study were 263 firm-year from Kompas100 index. Data were analyzed using multiple linear regression method. The result of this study indicate that the higher the number of pages, words and characters, which reflects the poor readability of the annual report, has a negative effect on the asset turnover ratio, which is an inverse proxy for agency costs. Furthermore, the presence of the analyst coverage variable is able to moderate the positive effect between the number of pages, words and characters in the annual report on the asset turnover ratio. However, no significant effect was found during both test between value relevance to asset turnover ratio and that are moderated by analyst coverage.

Strengthening Corporate Cash Holdings and Investment Efficiency in the COVID-19 Pandemic: Some Empirical Evidence from Indonesia Emerging Markets

“…The study aims to address the potential problems associated with controlling for endogeneity by utilizing the Coarsened Exact Matching (CEM) approach. CEM serves as an alternative method to address the issue of independent selection and focuses on observed variables that have the potential to influence the results in the regression analysis, as suggested by [54,57]. 6, thereby supporting the hypotheses put forth in the study.…”

“…In response, the government implemented various preventive measures across sectors. One significant consequence of the Pandemic has been the increased uncertainty surrounding economic policies, prompting firms to adopt a more cautious approach to managing their cash holdings [11,53,54]. Given the prevailing uncertain economic conditions, it is likely that firms will choose to bolster their cash reserves as a precautionary measure [11].…”

Annual Report Complexity and Firm Profitability: The Roles of Agency Costs and Financial Risk as Moderating Variables: A Case of Egypt

“…Furthermore, El-Din et al ( 2022) reported that more readable (less complex) annual reports increase financial analysts' earnings forecasting accuracy, improve stock liquidity, and enhance investors' valuation of a company, which reduces a company's costs and improves its profitability. A recent study by Soesanto and Wijaya (2022) examined the moderating effect of the value relevance of financial information and analyst coverage on the relationship between annual report readability and agency costs. They depended on a sample of 263 Indonesian companies listed on the Kompas 100 index during the period 2016-2019.…”