Purpose – Informational efficiency is a fundamental aspect of capital market quality, and therefore,

regulators, managers and practitioners attempt to find ways to improve the informational efficiency. Since

prior studies primarily focus on the numerical attributes of corporate reporting, it is not yet adequately

known whether or not the linguistic attributes of corporate reporting affect informational efficiency. Thus, the

purpose of this paper is to examine whether corporate reporting readability (readability), as an important

linguistic attribute of corporate reporting, affects informational efficiency.

Design/methodology/approach – To measure readability, this paper uses Fog index. Moreover, to

measure informational efficiency, the paper uses stock return variance ratios.

Findings – The findings reveal a positive and significant association between readability and informational

efficiency. Moreover, the findings show that the association of readability and informational efficiency is

stronger for firms facing higher information asymmetry. The findings further document the spillover effect of

readability, in the sense that the readability of economically related public firms affects a firm’s informational

efficiency. Overall, the results support the arguments that readability enhances informational efficiency.

Originality/value – This study contributes to the literature by providing evidence on the internalities and

externalities of readability in the context of informational efficiency. Thus, the study will be of interest to

regulators, managers and practitioners, especially in emerging capital markets, who tend to find practical and

easy ways to improve informational efficiency.