1 Introduction The United States corporate bond market has grown substantially over the past several decades. In 2015, there were about $1.5 trillion of new issuances, leading to a record of over $8 trillion in corporate bonds outstanding (SIFMA 2016). Bond rating agencies such as Moody's Investors Service (Moody's) and Standard & Poor's (S&P) serve an important role in this large market by reducing information asymmetry between issuers Concerns over disclosure readability have led both pundits (Schroeder 2002; Cox 2007; Radin 2007) and the Securities and Exchange Commission (SEC 1998; SEC 2013) to raise awareness about the impact of increasingly long and less readable financial disclosures on investor comprehension. Consistent with these concerns, research suggests that firms often fail to write the narrative portion of their investor communications in a clear and concise manner, inhibiting investor understanding (Li 2008; Miller 2010; Lehavy et al. 2011; Lawrence 2013). We predict that less readable 10-K filings will lead to greater uncertainty about ex ante default risk resulting in less favorable ratings, greater disagreement between rating agencies, and a higher cost of debt capital. Although the link between disclosure readability and bond ratings is somewhat intuitive, a priori it is unclear that readability will affect rating agencies' predictions about default risk. For instance, the vast majority of research examining the role of financial information in ratings focuses on quantitative aspects such as financial statement ratios (Kaplan and Urwitz 1979; Blume et al. 1998) and the adjustments that rating agencies make to those GAAP-based ratios (Kraft 2015). As such, it is unclear from empirical studies whether agencies rely on other non-quantitative factors (e.g., narrative disclosures) or which types of nonquantitative factors matter. The impact of financial statement readability is far from settled. While earlier studies, such as by Lehavy et al. (2011), suggest that financial disclosure readability measured using the Fog Index impacts equity analysts, more recent evidence by Loughran and McDonald (2014a) suggests that this association between Fog and analyst dispersion no longer exists in more recent periods. Just as it is important tore-examine these relationships across different periods, it is also important to examine whether they are unique to certain analyst types. In particular, debt rating agencies are not only likely to have substantially different forecast models and processes than their equity market counterparts but are also likely to have greater access to material nonpublic information, making it unclear that they would respond similarly. In sum, given the substantial portion of narrative information in mandated filings and the limited understanding of the rating process, we believe that it is important to examine the role of readability on debt market outcomes. We examine 3659 initial corporate bond ratings issued between 1994 and 2014. We find that less readable narrative disclosures are associated with both less favorable bond ratings and more frequent and pronounced disagreement between Moody's and S&P on the same issuance. Specifically, we find that less readable reports are associated with both a greater probability of split ratings as well as a greater absolute difference between the ratings. This evidence suggests that higher processing costs stemming from more complex narrative disclosure lead to greater disagreement between the rating agencies. This evidence further suggests the narrative portions of disclosures incre- mentally affect ratings, beyond the financial ratios investigated in prior literature. Perhaps more importantly, we document that financial disclosure readability has real market implications, as less readable filings are associated with higher costs of debt. For perspective, an improvement in our readability measure from the 75th to the 50th percentile would save an issuer approximately $440,000 per year of interest on the average bond issuance size of $430 million in our sample. Together, these findings should reinforce regulators' focus on improving the effectiveness of disclosures (SEC 2014)