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.
We investigate whether nonprofessional investors' responses to a company's reported earnings differ when management earnings guidance is presented as a goal or an expectation. We present 64 M.B.A. students and 262 MTurk participants with earnings guidance, manipulating between subjects whether management provides the guidance as a “goal” or an “expectation” and whether the company's reported earnings fall short or exceed investors' expectations as derived from management's earnings guidance. Our experimental results suggest that if earnings guidance is issued as a goal rather than as an expectation, investors respond less negatively when earnings fall short of investors' expectations, but not less positively when earnings exceed investors' expectations. Mediation analysis supports the interpretation that earnings falling short of investors' expectations leads investors to perceive managers as less competent and to be more disappointed when managers issue expectation rather than goal guidance, which in turn influences investors' attractiveness judgments of the company.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.