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Annual report readability and trade credit financing: Evidence from China

Author

Listed:
  • Li, Hong-Quan
  • Yang, Yang
  • Xue, Feng-Wan
  • Liu, Zhi-Yi

Abstract

The clarity of an annual report is crucial for stakeholder understanding and trust, notably so in China, which is characterized by its unique high-context culture. This study investigates the impact of annual report readability on trade credit financing in Chinese listed companies. Beyond the measure derived from the Fog index, we employ innovative methodologies, including machine learning and the application of Chinese linguistic “hedge words”, to refine the understanding of the relationship between annual report readability and trade credit financing. Our findings indicate that poor readability significantly restricts firms’ access to trade credit financing, particularly for companies with limited international engagements and those with weaker product market power. These results remain consistent across different measures of report readability and trade credit financing.

Suggested Citation

  • Li, Hong-Quan & Yang, Yang & Xue, Feng-Wan & Liu, Zhi-Yi, 2024. "Annual report readability and trade credit financing: Evidence from China," Research in International Business and Finance, Elsevier, vol. 69(C).
    • Handle: RePEc:eee:riibaf:v:69:y:2024:i:c:s0275531924000126
    DOI: 10.1016/j.ribaf.2024.102220
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    More about this item

    Keywords

    Annual report readability; Trade credit financing; Text mining;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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