Does XBRL Adoption Reduce the Cost of Equity Capital?

47 Pages Posted: 19 Aug 2012  

Oliver Zhen Li

National University of Singapore

Chenkai Ni

Fudan University

Yupeng Lin

National University of Singapore

Date Written: 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.

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

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: https://ssrn.com/abstract=2131001 or http://dx.doi.org/10.2139/ssrn.2131001

Oliver Zhen Li (Contact Author)

National University of Singapore ( email )

Department of Accounting
Singapore

Chenkai Ni

Fudan University ( email )

Guoshun Road 670
Yangpu
Shanghai, Shanghai 200433
China

Yupeng Lin

National University of Singapore ( email )

15 Kent ridge drive
Singapore
Hong Kong

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