The moderating role of institutional investors and product market competition on the effect of readability of financial reports on the cost of capital

Document Type : Research Paper

Authors

1 University of Tehran

2 MSc. of Accounting, KAR Higher Education Institute, Qazvin, Iran.

3 Assistant Prof. of Accounting, Persian Gulf University, Bushehr, Iran.

Abstract

The cost of capital is one of the most important and key concepts in many financial and management decisions, and it is of great importance for company managers, which is affected by several factors. Recent studies have shown that less readability of financial reports reduce the ability of investors to process and interpret annual reports, increase the risk of information and, as a result, the cost of capital. Also, the relationship between the readability of financial reports and the cost of capital depends on the ownership level of institutional investors and the degree of competition in the product market. Therefore, this research aims to investigate the relationship between the readability of financial reports and the cost of capital with the moderating role of institutional investors and competition in the product market. In this regard, 105 companies admitted to the Tehran Stock Exchange were examined between 2015 and 2021. To evaluation and analyze the data, the EViews software was used, and to estimate the patterns, regression analysis with combined data was used. The results show that there is a positive and significant relationship between the unreadability of financial reports and the cost of capital of companies. Also, institutional investors have a decreasing moderating effect on the relationship between the unreadability of financial reports and the cost of capital of companies. Finally, competition in the product market has a decreasing moderating effect on the relationship between the unreadability of financial reports and the cost of capital of companies.

Keywords

Main Subjects

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Journal of Accounting Advances
Volume 16, Issue 1
May 2024
Pages 175-207

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History

  • Receive Date: 21 January 2024
  • Revise Date: 23 June 2024
  • Accept Date: 29 September 2024

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