The Effect of Linguistic and Conceptual Complexity of Financial Reports on Investors’ Economic Decision-Making Quality: The Mediating Role of the Audit Expectation Gap
Keywords:
Financial Reporting Complexity, Decision-Making Quality, Audit Expectation Gap, Structural EquationsAbstract
This study aims to examine how linguistic and conceptual complexity in financial reports affects investors’ economic decision-making quality, with emphasis on the mediating role of the audit expectation gap. This applied, descriptive–survey study analyzed data from 118 auditors, financial managers, and accountants using a 60-item Likert-scale questionnaire. Structural equation modeling was conducted with SmartPLS software, and instrument reliability and validity were confirmed using Cronbach’s alpha, composite reliability, and average variance extracted. Results indicated that linguistic complexity negatively and significantly affects decision-making quality (β = −0.48, p < 0.001). Conceptual complexity positively influences the audit expectation gap (β = 0.52, p < 0.001), which in turn negatively affects decision-making quality (β = −0.36, p < 0.001). Conceptual complexity also had a direct negative effect on decision-making quality (β = −0.41, p < 0.001) and a significant indirect effect through the audit expectation gap (β_indirect = −0.19). The structural model demonstrated good fit (CFI = 0.928; RMSEA = 0.046). Financial reporting complexity undermines investors’ decision-making quality both directly and indirectly by intensifying the audit expectation gap.
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Copyright (c) 2025 Siamak Taghipour Zarfsaz (Author); Saeid Jabbarzadeh Kangarlooee (Corresponding author); Jamal Bahri Sales, Asgar Pakmaram (Author)
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