Evidence on the Impact of Adopting English as an External Reporting Language on Foreign Investment, Information Asymmetry, and Analyst Following

Forthcoming, Journal of International Business Studies

Kelley School of Business Research Paper No. 2014-01

52 Pages Posted: 9 May 2014

See all articles by Thomas Jeanjean

Thomas Jeanjean

ESSEC Business School - Department of Accounting and Management Control

Hervé Stolowy

HEC Paris - Accounting and Management Control Department

Michael H.R. Erkens

Erasmus University Rotterdam - Erasmus School of Economics; Erasmus Research Institute of Management (ERIM)

Teri Lombardi Yohn

Indiana University - Kelley School of Business - Department of Accounting

Date Written: May 7, 2014

Abstract

This study investigates the economic consequences of non-English speaking companies adopting English as an external reporting language. We examine a sample of companies that initiate the voluntary issuance of an annual report in English in addition to the local language annual report. To control for self-selection, we use a difference-in-differences design with a propensity score matched control sample. We find that adoption of English as an external reporting language is associated with increased foreign ownership, decreased information asymmetry, and increased analyst following. We also find that these benefits are not conditional on the use of IFRS for financial reporting. Our findings hold if we run a number of robustness checks to control for correlated events (creation of an investor relations service, provision of conference calls, and/or changes in management). These results are consistent with the language used in the annual report acting as a barrier to investment for some investors and with annual reports issued in English reducing investors’ information processing costs.

Keywords: English, language, annual report, foreign ownership, information asymmetry, analyst following

JEL Classification: M41

Suggested Citation

Jeanjean, Thomas and Stolowy, Hervé and Erkens, Michael H.R. and Yohn, Teri Lombardi, Evidence on the Impact of Adopting English as an External Reporting Language on Foreign Investment, Information Asymmetry, and Analyst Following (May 7, 2014). Forthcoming, Journal of International Business Studies; Kelley School of Business Research Paper No. 2014-01. Available at SSRN: https://ssrn.com/abstract=2434032

Thomas Jeanjean

ESSEC Business School - Department of Accounting and Management Control ( email )

Av Bernard Hirsch
Cergy-Pontoise 95021
France

Hervé Stolowy (Contact Author)

HEC Paris - Accounting and Management Control Department ( email )

Jouy-en-Josas Cedex
France
+33 1 39 67 94 42 (Phone)
+33 1 39 67 70 86 (Fax)

HOME PAGE: http://www.hec.fr/stolowy

Michael H.R. Erkens

Erasmus University Rotterdam - Erasmus School of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Teri Lombardi Yohn

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States
(812) 855-0430 (Phone)

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