The Effect of Financial Reporting Readability on Foreign Investors’ Information Acquisition Activity

[연구목적] This study examines the effect of financial reporting readability on foreign investors’ information acquisition activity. [연구방법] We use OLS to test the hypotheses. To measure information collection activities, we use investors’ 10-K search activities from EDGAR database. [연구결과] We find that foreign investors more frequently access 10-K filings that are more readable. Their frequent access leads to higher foreign institutional ownership of U.S stocks in the subsequent period. We also find that the positive association between foreign access and financial reporting readability is stronger when readers are from countries of which language shares more similarities with English. [연구의 시사점] Financial reporting readability plays an important role in facilitating foreign investment, further highlighting the benefit of making financial reports more readable.