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http://ssrn.com/abstract=2131001
 
 

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Does XBRL Adoption Reduce the Cost of Equity Capital?


Oliver Zhen Li


National University of Singapore

Chenkai Ni


National University of Singapore

Yupeng Lin


City University of Hong Kong

August 17, 2012


Abstract:     
XBRL filing reduces investors’ information processing cost. We find that XBRL adoption results in a significant reduction in firms’ cost of equity capital and that this effect is stronger in firms with small size, high growth, low analyst coverage and illiquid stocks. We also show that firms experience an increase in analyst coverage, forecast accuracy and a decrease in forecast dispersion after XBRL adoption. Further, XBRL adoption improves firms’ stock liquidity. Finally, the effect of XBRL adoption on the cost of equity capital, analyst behavior and stock liquidity is weaker for voluntary filers than for mandatory filers. In sum, we provide strong evidence supporting the argument that information processing cost significantly affects the cost of equity capital.

Number of Pages in PDF File: 47

Keywords: XBRL, cost of equity capital, analyst forecast, liquidity

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Date posted: August 19, 2012  

Suggested Citation

Li, Oliver Zhen and Ni, Chenkai and Lin, Yupeng, Does XBRL Adoption Reduce the Cost of Equity Capital? (August 17, 2012). Available at SSRN: http://ssrn.com/abstract=2131001 or http://dx.doi.org/10.2139/ssrn.2131001

Contact Information

Oliver Zhen Li (Contact Author)
National University of Singapore ( email )
Department of Accounting
Singapore
Chenkai Ni
National University of Singapore ( email )
1 Business Link
Singapore, 117592
Singapore
Yupeng Lin
City University of Hong Kong ( email )
Hong Kong
Hong Kong
Hong Kong
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