Annual report readability and financial reporting quality: the moderating role of information asymmetry

Purpose Drawing from agency and comprehension theories, this paper aims to examine the influence of annual report readability (ARR) on financial reporting quality (FRQ), with a focus on how information asymmetry moderates this relationship. Design/methodology/approach The study uses a sample of 467 listed firms in Vietnam from 2015 to 2021. To analyze the relationship between ARR and FRQ, this paper employs a Generalized Method of Moments (GMM) regression, incorporating information asymmetry as a moderating factor. Findings The research findings show that ARR has a positive and significant impact on the FRQ of Vietnamese-listed firms. This paper also finds that information asymmetry significantly and partially moderates the relationship between ARR and FRQ. Specifically, ARR can help alleviate the level of information asymmetry and contributes to improved FRQ. Practical implications From a practical perspective, this paper provides empirical evidence for managers, investors and related government departments to evaluate the effects of ARR and offers regulators a method to help improve the transparency of the stock market. More importantly, the results of this study have reference value for scholars and practitioners in developing countries like Vietnam. Originality/value From a theoretical perspective, our study adds to the growing literature on ARR, expands the scope of ARR research, elaborates on relevant economic consequences of ARR and complements the literature on the determinants of FRQ.