Financial disclosure readability and innovative firms' cost of debt

A.I.O. Hoffmann*, S. Kleimeier

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review


Innovative firms confront potential lenders with various risks, including possible innovation failure, uncertain R&D investment payoffs, cash flow volatility, and low collateral value of hard-to-value intangible assets. As a result, these firms might struggle to obtain financing. More readable financial disclosures could mitigate the informational risk around innovative firms' fundamentals, ease their monitoring by lenders, and thus ultimately reduce these firms' cost of debt. In this regard, we find that while all firms can overcome information uncertainty about their firm fundamentals and reduce their spreads by having more readable financial disclosures, there is an additional benefit in terms of readability further lowering the cost of debt for innovative firms. The additional benefit that innovative firms can achieve from having more readable financial disclosures, however, is limited to situations of more pronounced information asymmetry where there is no previous lending relationship.
Original languageEnglish
Pages (from-to)1-15
Number of pages15
JournalInternational Review of Finance
Publication statusE-pub ahead of print - 13 Dec 2019


  • bank loans
  • cost of debt
  • financial disclosure readability
  • information asymmetry
  • information uncertainty
  • innovation
  • R&D

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