Credit Default Swap Spreads and Annual Report Readability

We examine the relationship between CDS spreads and annual report readability in this paper. Our results suggest that annual report readability is negatively related to CDS spreads. Furthermore, on the information supply side, the effect of readability on CDS spreads is more concentrated on firms with high analyst coverage. On the information demand side, the impact of readability on CDS spreads is more concentrated on firms with high information asymmetry. Results are robust to endogeneity issues and different subsamples. Our results suggest that investors appear to take into account the information transparency in their view of the firms' default risk