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

Authors

  • Dwi Puji Rahayu Faculty of Economic and Bussiness, Universitas PGRI Mpu Sindok, Nganjuk, East Java, Indonesia. Author
  • Indrian Supheni Faculty of Economic and Bussiness, Universitas PGRI Mpu Sindok, Nganjuk, East Java, Indonesia. Author
  • Mohammad Ali Luthfi Faculty of Economic and Bussiness, Universitas PGRI Mpu Sindok, Nganjuk, East Java, Indonesia. Author

DOI:

https://doi.org/10.65150/EP-jefrr/V2E6/2026-03

Keywords:

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

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.

Author Biographies

  • Dwi Puji Rahayu, Faculty of Economic and Bussiness, Universitas PGRI Mpu Sindok, Nganjuk, East Java, Indonesia.

    a lecturer and researcher in the field of accounting

  • Indrian Supheni, Faculty of Economic and Bussiness, Universitas PGRI Mpu Sindok, Nganjuk, East Java, Indonesia.

    a lecturer, practitioner, and researcher in the field of economics and accounting who has publications both nationally and internationally

  • Mohammad Ali Luthfi, Faculty of Economic and Bussiness, Universitas PGRI Mpu Sindok, Nganjuk, East Java, Indonesia.

    a lecturer and researcher in the field of accounting

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Published

2026-06-08

Issue

Vol. 2 No. 06 (2026): Volume 02, Issue 06 June 2026

Section

Articles

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Copyright (c) 2026 Dwi Puji Rahayu, Indrian Supheni, Muhammad Ali Luthfi, SE., M.Si (Author)

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This work is licensed under a Creative Commons Attribution 4.0 International License.

How to Cite

Rahayu, D. P., Supheni, I., & Luthfi, M. A. (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(06), 326-333. https://doi.org/10.65150/EP-jefrr/V2E6/2026-03

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