The Economic Consequences of Increasing the International Visibility of Financial Reports

We investigate the economic consequences of increasing financial report visibility, measured by the use of English as a reporting language for firms from non-English-speaking countries. We sample 113 firms that started publishing their annual report in English (in addition to their local language) during 2004-2007 while not cross listing, not joining a major stock index or a stock index that requires external reporting in English and not engaging in major M&A activity. Taking into account the endogeneity of the reporting language, with a difference-in-differences setting and propensity score matching, and controlling for confounding factors, we find that adoption of English in the annual report is associated with lower information asymmetry, greater analyst following and more foreign investors. This suggests that language per se is an attribute of the firm's visibility.

Michael Erkens is research associate at the University of Trier, chair of corporate finance and capital markets. Since September 2011 he is visiting PhD student in accounting, Booth School of Business, University of Chicago, Chicago (USA).