Readability of Notes to Consolidated Financial Statements and Corporate Bond Yield Spread

Tsung Kang Chen, Yijie Tseng*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Scopus citations


We examine the association between the readability of ‘Notes to consolidated financial statements’ (Notes) in annual reports and corporate bond yield spread. We find that less readable narrative disclosure of Notes is significantly associated with greater bond yield spread. In addition, the association becomes stronger for firms in high-tech sectors or those with higher equity volatility, whereas it becomes weaker for firms with higher profitability or those with the reporting location of Notes being outside of the 10-K format file. We also provide evidence that Notes readability is helpful in explaining the puzzle of a positive yield spread always appearing when the bond approaches its maturity in practice. Overall, our results suggest that the Notes readability has a substantial association with bond yield spread and its term structure.

Original languageEnglish
JournalEuropean Accounting Review
StateE-pub ahead of print - 28 Mar 2020


  • Bond yield spread
  • Credit risk
  • Narrative disclosure readability
  • Notes readability
  • Notes to consolidated financial statements (Notes)
  • Term structure

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