The interplay of financial report complexity: Assessing its influence on debt financing and share price

Abstract

Recent studies indicate that financial reports have become increasingly lengthy and complex. This complexity may pose challenges for individual investors, who might struggle to interpret these intricate annual reports effectively. However, banks have a distinct advantage, as they can access private information about borrowing companies. In Bangladesh’s rapidly expanding corporate sector, where firms frequently seek financing through equity and debt, understanding the impact of financial statement complexity is crucial. This study aims to explore how the intricate nature of financial reports influences both bank loan dependency and share prices. The analysis focuses on fifty companies listed on the Dhaka Stock Exchange (DSE) over the period from 2013 to 2023. Data on financial statements and debt financing were collected from annual reports, with complexity assessed based on two parameters: the length and readability of the financial statements. The results suggest a correlation where increased complexity in financial statements is associated with a greater reliance on bank loans. However, the complexity of financial statements appears to have no significant impact on investors' behavior, as reflected in the return estimates. This study contributes to the existing literature by providing evidence of the financial report complexity of Bangladeshi listed companies and its impact on bank loan dependency and share prices.