Abstract
This study investigates whether adopting English as an external reporting language is associated with increased foreign investment, liquidity, and/or analyst following in non-English speaking company’s stock. Specifically, we examine a sample of companies that initiate the issuance of an annual report in English in addition to the local language annual report. Using a difference in-difference design with a propensity score matched control sample, we find that foreign ownership, liquidity, and analyst following increase significantly around the adoption of English as an external reporting language. We also find that the benefits of adopting English as an external reporting language do not appear to depend on the pervasiveness of the use of the local language. Finally, we perform a time-series analysis and find that adopting English as a reporting language is associated with decreases in information asymmetry (bid-ask spreads and zero return days) in the year of adoption, increases in analyst following in the year after adoption, and increases in foreign ownership two years after adoption. These results suggest that the economic benefits of adopting English as an external reporting language first become evident through decreased information asymmetry. These results are consistent with the notion that the language used in the annual report can act as a barrier to investment for some investors and that issuing an annual report in English reduces investors’ information processing costs.
Published Version
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