Thursday, 10 June 2010

The impact of annual report language on firms: yes there is one

You may think that the language a firm's annual report is issued in would not matter. If you do it looks like you could be wrong.

This comes from the Economic Logic blog:
Thomas Jeanjean, Hervé Stolowy and Michael Erkens show that publishing an annual report in English, in addition to the local language, increases the pool of potential investors and thus reduces information asymmetry. They are careful to address the endogeneity issue here, of course, as a firm may issue an English report because the investor base has broadened. This language effect is similar to the adoption of particular accounting standards, as this allows investors to better understand the firm. Empirically, this improved information translates into lower bid-ask spreads on the stock market, larger following by analysts, and a larger share of foreign ownership. Whether this impacts also firm value is not addressed, though.

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