XBRL, if you’re not fully up to speed, stands for Extensible Business Reporting Language. It’s a global standard for financial reporting which can be machine read and China was the first jurisdiction that made it mandatory in 2009.
The paper I’m highlighting this week is from Songsheng Chan, Ling Harris, Wenyang Li and Donglin Wu of the Beijing Institute of Technology, The University of South Carolina and (both from) the Beijing Institute of Technology respectively.
Using before and after data for the period from 2005~2011 the researchers looked at stocks listed in both Shanghai and Shenzhen to see not only if the introduction of XBRL reduced the firms cost of equity but how this was happening.
Their results should come as no surprise. Better information reduces the cost of business and XBRL introduction seems to have benefited companies across the board (with a bigger benefit accruing to non SOEs). Previous studies have shown this effect to be swift in the cases of Japan and Korea and somewhat delayed in the case of the US. China seems to have followed the US pattern where few benefits accrue in the short term but are significant over the longer term.
This paper compliments the literature that overwhelmingly supports the notion that good corporate governance both lowers the cost of doing business and can, and does, significantly enhance firm value. It’s an ongoing mystery then why so many listed companies in this part of the world haven’t more fully developed the skills?
Happy Sunday
[You can access the paper in full via the following link http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2403428]