How Does XBRL Affect the Cost of Equity Capital? Evidence from an Emerging Market

Songsheng Chen · Ling L. Harris · Wenying Li · Donglin Wu

32 citations0/0 files storedJournal of International Accounting Research

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Financial Reporting and XBRL Financial Markets and Investment Strategies Auditing, Earnings Management, Governance

Abstract

ABSTRACT Applying path analysis, we examine how eXtensible Business Reporting Language (XBRL) in China affects the cost of equity capital. Using a one-group pre- and post-test design, we find that XBRL reduces the cost of equity capital and that XBRL strengthens the direct linkage of the inverse relationship between financial reporting quality and the cost of equity capital but not the indirect linkage via the mediation of information asymmetry. Our findings also show that XBRL adoption leads to a greater reduction in the cost of equity capital, when there is a high level of corporate governance. Our study contributes to research on XBRL and to practice by documenting how XBRL affects the cost of equity capital.

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References

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