The Analysis of the role of Financial Reporting Readability in Improving the Market Perceptions regarding the Corporate Cash Holdings

Subject Areas : Management Accounting

Yassaman Khalili ¹ , Abolfazl Momeni Yanesari ² , Mehdi Safari Gerayli ³ , Abdolkhalegh Khonaka ⁴

1 - Assistant Professor, Department of Accounting, Payame Noor University, Tehran, Iran.
2 - Assistant professor of Accounting, faculty of Humanities & Physical Education, Gonbad Kavous University, Gonbad, IRAN.
3 - استادیار گروه حسابداری، واحد بندرگز، دانشگاه آزاد اسلامی، بندرگز، ایران.
4 - Assistant professor of Accounting, Faculty of Humanities & Physical Education, Gonbad Kavous University, Gonbad, IRAN.

Received: 2023-10-11 Accepted : 2024-06-18 Published : 2024-06-23

Keywords: readability, financial reporting, value of cash holdings,

Abstract :

Readability refers to the reader's success in reading and understanding a written text. Based on the extant literature, more readable financial statements due to mitigate information asymmetry between investors and corporate insiders increase investors’ monitoring ability thus preventing managers’ inefficient cash use. In this regard, the present study was conducted with the aim of investigating the effect of financial reporting readability on the market valuation of corporate cash holdings. to do so, a sample of 121 firms listed in Tehran Stocks Exchange during the time period 2019 – 2023 was selected and the research hypothesis was empirically tested using the multivariate linear regression analysis based on panel data technique. the research findings indicate that readability increases the market value of corporate cash holdings. In other words, investors place more value on cash held in the firms with more readable financial reports. investors place more value on cash held in the firms with more readable financial reports.