Journal of Economic, Finance Research and Review (JEFRR)

Financial Reporting Quality and Financial Distress: The Moderating Role of Capital Market Transparency Across Emerging and Developed Markets

Rahayu, Dwi Puji, Supheni, Indrian, Luthfi, Mohammad Ali

8 June 2026 · Vol. 2, Issue 6, pp. 326-333

DOI: 10.65150/EP-jefrr/V2E6/2026-03

Abstract

This study examines whether financial reporting quality (FRQ) reduces the probability of financial distress among publicly listed companies and whether this relationship is moderated by capital market transparency, comparing emerging and developed markets. Drawing on Information Asymmetry Theory and Institutional Theory, we argue that high-quality financial reporting reduces distress risk by mitigating information gaps between managers and external stakeholders, and that this protective effect is amplified in environments with greater market transparency. Using a cross-country panel of approximately 160,000 firm-year observations from 35 countries over 2010–2023, and employing multiple proxies for both FRQ and financial distress, we find consistent evidence that FRQ significantly reduces financial distress probability across all market types. Crucially, capital market transparency significantly amplifies this relationship, with the moderating effect stronger in emerging markets than in developed markets — a finding robust to instrumental variable estimation and multiple alternative specifications. These results extend the FRQ consequences literature to the financial distress domain and provide actionable evidence for regulators, investors, and corporate managers regarding the institutional prerequisites for financial resilience.

Keywords: Financial Reporting Quality, Financial Distress, Capital Market Transparency, Emerging Markets, Developed Markets, Information Asymmetry, Cross-Country

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Rahayu, Dwi Puji, Supheni, Indrian, Luthfi, & Mohammad Ali (2026). Financial Reporting Quality and Financial Distress: The Moderating Role of Capital Market Transparency Across Emerging and Developed Markets. Journal of Economic, Finance Research and Review, 2(6), 326-333. https://doi.org/10.65150/EP-jefrr/V2E6/2026-03

@article{Rahayu2026,
  title   = {Financial Reporting Quality and Financial Distress: The Moderating Role of Capital Market Transparency Across Emerging and Developed Markets},
  author  = {Rahayu and Dwi Puji and Supheni and Indrian and Luthfi and Mohammad Ali},
  journal = {Journal of Economic, Finance Research and Review},
  year    = {2026},
  volume  = {2},
  number  = {6},
  pages   = {326-333},
  doi     = {10.65150/EP-jefrr/V2E6/2026-03},
  url     = {https://doi.org/10.65150/EP-jefrr/V2E6/2026-03}
}

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