Financial Information Quality Between Numerical Accuracy and Comprehensibility: Effects on Investment Decisions in the Context of the Bucharest Stock Exchange

The informational efficiency of stock prices is conditioned by the level of quality of financial reports, contributing to an accurate assessment of the company’s future performance. By approaching informational quality from two perspectives, we conducted an analysis of the impact of faithful representation and readability of annual reports on the reaction of the Romanian capital market, measured by annual stock returns (SR) and cumulative abnormal returns (CAR). The findings revealed an accentuated concern of investors regarding the faithful representation of the firm’s financial results (both at the time of financial statements’ publication and at the year-end) and a diminished significance of the comprehensibility level of financial information in the investment decision-making process. The annual reports of a sample of firms listed on the BSE between 2017 and 2023 have an increased level of linguistic complexity, which entails processing costs, and are intended for sophisticated users with financial expertise. Along with the specialized language, the extensive length of reports delays the incorporation of all information into the stock price, decreasing the informational efficiency of the market. This empirical study applies several indices to assess the readability and conciseness of financial information (FOG index, Flesch–Kincaid index, Flesch Reading Ease Score, and report length) and contributes to the expanding literature by providing a useful basis for future analysis of the influence of financial report quality on investors’ perceptions.