TITLE:
XBRL Adoption, Information Asymmetry, Cost of Capital, and Reporting Lags
AUTHORS:
Chae-Won Ra, Ho-Young Lee
KEYWORDS:
Information Technology, XBRL, Cost of Equity Capital, Information Asymmetry, Reporting Lag
JOURNAL NAME:
iBusiness,
Vol.10 No.3,
August
13,
2018
ABSTRACT: The voluntary and mandatory introduction of a new information
technology, XBRL, in 2006 and 2007 by the Financial Supervisory Services of Korea
has significantly affected capital markets, possibly through a reduction in the
information asymmetry between firms and users of financial information. This study
examines how changes in the information environment attributable to XBRL adoption
affect the cost of capital and whether the adoption reduces reporting lags for both
voluntary and mandatory filers. Using a 152 firm-year sample, this study finds evidence
that the cost of equity capital declined after XBRL adoption, and this decline was
greater for voluntary filers with higher information asymmetry. Mandatory filers
also experienced incremental reductions in their costs of equity capital after the
adoption. Additionally, this study finds evidence that financial reporting lags
decrease for both voluntary and mandatory adopters after the adoption. Firms with
reduced reporting lags after the adoption experience reduction in cost of capital.