Research On The Impact Of Annual Report Readability On The Cost Of Equity Capital

The high-quality information disclosure of listed companies is the core of capital market construction.The new Securities Law requires companies to make "concise,clear,and easy-to-understand" information disclosure.The annual report is the carrier of information transmitted by listed companies to investors,and it is also the important basis for investors to make decisions.Therefore,research on the relationship between the readability of annual reports and the cost of equity financing is of great significance for improving the quality of information disclosure of listed companies and promoting the healthy development of the capital market,both theoretically and practically.Based on principal-agent theory,information asymmetry theory and liquidity premium theory,this paper analyzes the impact mechanism of annual report readability on equity financing costs,and collects data on companies listed on the GEM of Shenzhen Stock Exchange from 2009 to 2019,and uses text analysis technology to measure The annual report readability index,which empirically tests the impact of annual report readability on the company’s equity financing cost.The results show that:(1)In general,there is a significant negative correlation between the readability of the annual report and the cost of equity financing,that is,the easier the readability of the annual report to understand,the lower the cost of equity financing;(2)The improvement of the readability of the annual report is conducive to improving the stock liquidity;(3)The more attention the securities analysts pay,the more negative relationship between the readability of annual reports and the cost of equity financing;(4)The higher the shareholding ratio of institutional investors,the more negative correlation between the readability of annual reports and the cost of equity financing;(5)The higher degree of regional marketization,the more negative correlation between the readability of annual reports and the cost of equity financing.Based on the research conclusions,this paper puts forward the following suggestions:(1)Listed companies should improve the readability of annual reports to reduce the cost of equity financing,and prepare high-quality annual reports to be“concise,clear,and easy to understand”;(2)Companies should strengthen governance and improve internal control,form an effective internal supervision mechanism,thus to improve the quality of information disclosure;(3)The securities regulatory agency should supervise listed companies to improve the readability of annual reports through institutional norms,thus to reduce the moral hazard and adverse selection problems caused by information asymmetry;(4)Strengthen the construction of the team of securities analysts and institutional investors and absorb their opinions and suggestions on information disclosure;(5)Strengthen the construction of the external information environment of the enterprise.Build more channels for listed companies to disclose information,establish an interactive communication platform for investors,promote information exchange between listed companies and investors and within investors,reduce external environmental noise,and improve the quality of information dissemination.