Is the world flat? Economic consequences of geographic information in financial reports

Ziye Zhao, Qiujun Wu and Jianbo Chen

China Journal of Accounting Studies, 2018, vol. 6, issue 1, 24-44

Abstract: This study examines whether investors are concerned about textual geographic information in annual reports. Based on a sample of China’s listed firms, we report the following findings: First, the more low marketisation districts (LMDs) appear in the annual reports, the higher the market return will be. Second, the result is more pronounced in non-state companies. Third, the frequency of LMDs is positively related with Tobin Q and CEO’s compensation. Fourth, we are unable to detect any relation between the frequency of high marketisation districts (HMDs) and firm characteristics including short term market reaction, Tobin Q and CEO’s compensation. Lastly, frequencies of both LMDs and HMDs are positively related with corporate innovation measured by patents. Taken together, the results show that a company can succeed in a developing area by filling the void of infrastructure. The strategy of expanding business in developing areas does not impair long term innovative activities.

Date: 2018
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DOI: 10.1080/21697213.2018.1480168

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