Modeling the Moderating Role of Management Ability in the Relationship between Financial Reporting Readability and Agency Cost.

The usefulness of information provided by managers depends on the readability and ability to understand financial reports. According to the signaling theory, capable executives are not only reluctant to sophisticate and complicate their desirable performance, but in order to inform investors and financial analysts of their desirable performance and capabilities, publish more readable and understandable financial reports. Therefore, based on this argument, the present study uses a structural equation modeling approach to examine the relationship between financial reporting readability and the cost Agency and the study of the moderating effect of managerial ability on this relationship. To this end, the financial reporting readability of the company is evaluated using three Flash indicators, the Gunning Fugue Index, and the Text Length Index. The statistical sample of this study consists of 116 listed companies in Tehran Stock Exchange between 2013 and 2017. After reassuring the appropriateness of the measurement and structural models of the research, the findings suggest that readability financial reporting reduces the cost Agency. In addition, the results indicate that the ability to manage a negative relationship between financial reporting readability and the agency cost is exacerbated.