Does financial statement readability alleviate the informational disadvantage of foreign investors?

Abstract

Purpose

This paper aims to explore whether financial statement readability overcomes the information disadvantage of foreign equity investors.

Design/methodology/approach

A comprehensive data set of Indian firms listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) for 2007–2019 has been used to evaluate the proposed research questions. This study uses the Panel data method to investigate the research question.

Findings

The results reveal that readable financial statements attract foreign investments. The readability benefits are more noticeable for firms operating in less competitive industries and having poor earnings quality.

Originality/value

This study suggests that foreign investors facing informational disadvantages prefer firms with better readability as a substitute for informational acquisition, processing and monitoring.

Citation

Arora, S. and Chauhan, Y. (2023), "Does financial statement readability alleviate the informational disadvantage of foreign investors?", Pacific Accounting Review, Vol. 35 No. 3, pp. 432-450. https://doi.org/10.1108/PAR-05-2022-0070