XBRL extensions and cost of equity capital in Chinese firms: a natural experiment

Zhili Tian, Songsheng Chen, Jun Guo and Sungsoo Kim

Asia-Pacific Journal of Accounting & Economics, 2025, vol. 32, issue 3, 527-550

Abstract: This study investigates whether XBRL (eXtensible Business Reporting Language) extensions affect cost of equity capital in Chinese firms during the historical sample period of 2015–2016. We find that the additional information in XBRL extensions is positively associated with cost of equity capital in Chinese firms. These findings suggest that the excess information in XBRL extensions reduces the reliability and comparability of financial reporting, leading to an increase in information processing cost and exacerbating the quality of information environment in Chinese capital market. We also find that the positive association between XBRL extensions and cost of capital is stronger in the firms with higher information asymmetry of lower institutional ownership and lower analyst coverage. Furthermore, XBRL extensions associated with specific financial statement items play a significant role in raising cost of equity capital. Our findings indicate that the redundancy of information in XBRL extensions complicates information processing for financial statement users, thus adding value to the XBRL standard makers.

Date: 2025
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DOI: 10.1080/16081625.2024.2443839

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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