Annual Report Readability, Value Relevance, and Agency Costs: The Moderating Role of Analyst Coverage

Abstract

Excessive information asymmetry can generate agency costs that reduce operational efficiency. Enhancing annual report readability and accounting information relevance is expected to reduce asymmetry and suppress agency costs, while analyst coverage may influence this effectiveness through external monitoring. In Indonesia, the absence of readability standards causes variations in disclosure quality. This study examines the effects of annual report readability and value relevance on agency costs, and the moderating role of analyst coverage. Readability is measured using total pages, word count, and the Fog Index, while value relevance is proxied by the association between market value and EPS, BVPS, and OCFPS. Agency costs are represented by asset turnover and operating expense ratios. The sample consists of 80 non-financial firms listed on the Indonesia Stock Exchange from 2019–2024, analyzed using panel data regression. The findings show that readability increases agency costs, value relevance reduces them, and analyst coverage weakens the positive readability and agency costs relationship and strengthens the value relevance effect.