Does voluntary adoption of XBRL reduce cost of equity capital?

Lizhong Hao, Joseph H. Zhang, Jing Fang

Research output: Journal article publicationJournal articleAcademic researchpeer-review

26 Citations (Scopus)


Purpose - The paper aims to examine whether or not firms voluntarily filing in XBRL (eXtensible Business Reporting Language) format enjoy a lower cost of capital. XBRL, or "interactive data" as the US Securities and Exchange Commission refers to it, is an information format that enables electronic exchange of standardized business and financial information. Design/methodology/approach - The authors investigate whether voluntary adoption of XBRL impacts cost of equity capital using a sample of US firms participated in the SEC Voluntary Filer Program, each matched with a pair of non-XBRL filers (matched by two-digit SIC code, same fiscal yearend, and close total assets in the same year). The authors measure firm-specific cost of equity capital at the fiscal year of last voluntary XBRL filing, using the PEG ratio model proposed by Easton, Gode and Mohanram, and Hou et al. Findings - The results show that cost of equity capital is significantly and negatively associated with XBRL adoption. The magnitude of the coefficient on XBRL suggests that firms voluntarily adopting XBRL are associated with an average reduction in cost of equity capital by 17-20 basis points (conditional on different cost of capital measures). Research limitations/implications - There is a research limitation due to the sample of voluntary XBRL adopters as of self-selection bias. The authors address this issue by using the Heckman two-stage regression procedure. Practical implications - The study provides evidence on the economic consequence of XBRL adoption in that it benefits shareholders by reducing the cost of equity capital. The evidence should provide regulators like the SEC more incentives to mandate the XBRL standard and motivate companies to adopt the standard as well. Originality/value - By showing that voluntary XBRL adopters are associated with lower cost of equity capital, the study provides timely and relevant empirical evidence to the economic consequences of voluntary adoption of XBRL. It also contributes to the limited empirical research on the economic consequences of new information technology and highlights the importance of institutional regulation in shaping the outcomes of new financial reporting format.
Original languageEnglish
Pages (from-to)86-102
Number of pages17
JournalInternational Journal of Accounting and Information Management
Issue number2
Publication statusPublished - 1 Jan 2014
Externally publishedYes


  • Cost of equity capital
  • Information systems
  • US evidence
  • XBRL

ASJC Scopus subject areas

  • Management Information Systems
  • Accounting
  • Economics, Econometrics and Finance(all)


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