Determinants of Readability of the Annual Financial Report and its Impact on Agency Costs: An Applied Study on Companies Listed in the Egyptian Stock Exchange.

Document Type : Original Article

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Accounting and auditing department Faculty of Commerce Alexandria University Egypt

Abstract

The research aims to study and test the determinants of readability of financial reports in general and readability of footnotes in particular, and its reflection on agency costs. The research also aims to address the mediating role of readability of financial reports on the relationship between its determinants (represented in earning management, managerial entrenchment, audit quality, company size, and performance) and the agency cost, using Sample of non-financial companies listed on the Egyptian Stock Exchange during the period from 2016 to 2019.
The results of fundamental analysis showed the existence of positive and significant effect for both real earning management and the company's performance, the existence of a significant and negative impact for both the audit quality and the company size, and the existence of a negative but non-significant impact for each of the managerial entrenchment and accrual-based earnings management, on readability of financial reports. The study also found that there was a significant and negative effect of readability on agency cost. Moreover, the findings showed that the readability mediates the relationship between audit quality, company size and performance on one hand, and agency cost on the other hand. Finally, regarding the additional analysis, the study presented that best measurement tools are those measurements used in the fundamental analysis compared to measurements used in additional analysis.

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