©　2017,　Springer　Science+Business　Media　New　York.　This　paper　investigates　whether　annual　report　readability　matters　to　CDS　market　participants　and　how　it　affects　their　evaluation　on　a　firm’s　credit　risk,　as　measured　by　CDS　spreads.　We　find　that　the　less　readable　the　annual　reports,　the　higher　the　CDS　spreads.　Furthermore,　the　impact　of　readability　on　CDS　spreads　is　more　concentrated　on　firms　with　high　information　asymmetry　and　with　investment　grade　ratings.　Our　results　suggest　that　investors　take　into　account　the　readability　in　their　view　of　the　firms’　credit　risk.　Creditors　appear　to　suffer　higher　cost　on　CDS　protection　of　the　debts　if　the　underlying　firms　have　less　readable　annual　reports.