IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-00479511.html
   My bibliography  Save this paper

Really “Lost in translation”? The economic consequences of issuing an annual report in English

Author

Listed:
  • Thomas Jeanjean

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

  • Hervé Stolowy

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

  • Michael Erkens

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

Abstract

In this paper, we investigate the economic consequences of using English as an external reporting language for firms from non- English speaking countries. We use a difference-indifferences technique to estimate the effect of language. We use a sample of 166 firms that start publishing an annual report in English in addition to an annual report in their local language. We benchmark these firms to a sample of control firms defined via a propensity score matching procedure to control for endogeneity in the choice of the reporting language. We show that information asymmetry (measured as the bid-ask spread) is reduced, analyst following is enlarged and a greater investor base (measured as a higher number of foreign investors) is attracted. Our findings suggest that language per se may contribute to an increase in market efficiency by providing information accessible to more market participants.

Suggested Citation

  • Thomas Jeanjean & Hervé Stolowy & Michael Erkens, 2010. "Really “Lost in translation”? The economic consequences of issuing an annual report in English," Post-Print hal-00479511, HAL.
    • Handle: RePEc:hal:journl:hal-00479511
    Note: View the original document on HAL open archive server: https://hal.science/hal-00479511
    as

    Download full text from publisher

    File URL: https://hal.science/hal-00479511/document
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Lucia S Chang & Kenneth S Most & Carlos W Brain, 1983. "The Utility of Annual Reports: An International Study," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 14(1), pages 63-84, March.
    2. Ruud Vergoossen, 1993. "The use and perceived importance of annual reports by investment analysts in the Netherlands," European Accounting Review, Taylor & Francis Journals, vol. 2(2), pages 219-244.
    3. Fama, Eugene F & French, Kenneth R, 1992. "The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
    4. Portes, Richard & Rey, Helene, 2005. "The determinants of cross-border equity flows," Journal of International Economics, Elsevier, vol. 65(2), pages 269-296, March.
    5. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    6. Marco Pagano & Ailsa A. Röell & Josef Zechner, 2002. "The Geography of Equity Listing: Why Do Companies List Abroad?," Journal of Finance, American Finance Association, vol. 57(6), pages 2651-2694, December.
    7. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    8. Lucy F. Ackert & George Athanassakos, 2003. "A Simultaneous Equations Analysis of Analysts' Forecast Bias, Analyst Following, and Institutional Ownership," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30, pages 1017-1042.
    9. Frédéric Sonney, 2009. "Financial Analysts' Performance: Sector Versus Country Specialization," The Review of Financial Studies, Society for Financial Studies, vol. 22(5), pages 2087-2131, May.
    10. Baker, H. Kent & Nofsinger, John R. & Weaver, Daniel G., 2002. "International Cross-Listing and Visibility," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 37(3), pages 495-521, September.
    11. Nerys Fuller-Love, 1998. "Accounting in a European minority language: accounting in Welsh," European Accounting Review, Taylor & Francis Journals, vol. 7(2), pages 257-274.
    12. Tomas Dvorak, 2001. "Do Domestic Investors Have an Information Advantage? Evidence from Indonesia," Center for Development Economics 168, Department of Economics, Williams College.
    13. Brennan, Michael J & Cao, H Henry, 1997. "International Portfolio Investment Flows," Journal of Finance, American Finance Association, vol. 52(5), pages 1851-1880, December.
    14. Obrien, Pc & Bhushan, R, 1990. "Analyst Following And Institutional Ownership," Journal of Accounting Research, Wiley Blackwell, vol. 28, pages 55-76.
    15. Benston, George J. & Bromwich, Michael & Litan, Robert E. & Wagenhofer, Alfred, 2006. "Worldwide Financial Reporting: The Development and Future of Accounting Standards," OUP Catalogue, Oxford University Press, number 9780195305838.
    16. Daniel Sullivan, 1994. "Measuring the Degree of Internationalization of a Firm," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 25(2), pages 325-342, June.
    17. Francis, Jennifer & Douglas Hanna, J. & Philbrick, Donna R., 1997. "Management communications with securities analysts," Journal of Accounting and Economics, Elsevier, vol. 24(3), pages 363-394, December.
    18. Paul M. Healy & Amy P. Hutton & Krishna G. Palepu, 1999. "Stock Performance and Intermediation Changes Surrounding Sustained Increases in Disclosure," Contemporary Accounting Research, John Wiley & Sons, vol. 16(3), pages 485-520, September.
    19. Huberman, Gur, 2001. "Familiarity Breeds Investment," The Review of Financial Studies, Society for Financial Studies, vol. 14(3), pages 659-680.
    20. Leuz, Christian & Nanda, Dhananjay & Wysocki, Peter D., 2003. "Earnings management and investor protection: an international comparison," Journal of Financial Economics, Elsevier, vol. 69(3), pages 505-527, September.
    21. Leuz, C & Verrecchia, RE, 2000. "The economic consequences of increased disclosure," Journal of Accounting Research, Wiley Blackwell, vol. 38, pages 91-124.
    22. Emery, John T., 1974. "Efficient Capital Markets and the Information Content of Accounting Numbers," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 9(2), pages 139-149, March.
    23. Mark Grinblatt & Matti Keloharju, 2001. "What Makes Investors Trade?," Journal of Finance, American Finance Association, vol. 56(2), pages 589-616, April.
    24. Lucy F. Ackert & George Athanassakos, 2003. "A Simultaneous Equations Analysis of Analysts’ Forecast Bias, Analyst Following, and Institutional Ownership," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(7‐8), pages 1017-1042, September.
    25. Marschan, Rebecca & Welch, Denice & Welch, Lawrence, 1997. "Language: The forgotten factor in multinational management," European Management Journal, Elsevier, vol. 15(5), pages 591-598, October.
    26. Kalev, Petko S. & Nguyen, Anh H. & Oh, Natalie Y., 2008. "Foreign versus local investors: Who knows more? Who makes more?," Journal of Banking & Finance, Elsevier, vol. 32(11), pages 2376-2389, November.
    27. French, Kenneth R & Poterba, James M, 1991. "Investor Diversification and International Equity Markets," American Economic Review, American Economic Association, vol. 81(2), pages 222-226, May.
    28. Holger Daske & Luzi Hail & Christian Leuz & Rodrigo Verdi, 2008. "Mandatory IFRS Reporting around the World: Early Evidence on the Economic Consequences," Journal of Accounting Research, Wiley Blackwell, vol. 46(5), pages 1085-1142, December.
    29. Bae, Kee-Hong & Stulz, René M. & Tan, Hongping, 2008. "Do local analysts know more? A cross-country study of the performance of local analysts and foreign analysts," Journal of Financial Economics, Elsevier, vol. 88(3), pages 581-606, June.
    30. Aerts, Walter & Cormier, Denis & Magnan, Michel, 2008. "Corporate environmental disclosure, financial markets and the media: An international perspective," Ecological Economics, Elsevier, vol. 64(3), pages 643-659, January.
    31. Tesar, Linda L. & Werner, Ingrid M., 1995. "Home bias and high turnover," Journal of International Money and Finance, Elsevier, vol. 14(4), pages 467-492, August.
    32. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, April.
    33. Dahlquist, Magnus & Robertsson, Goran, 2001. "Direct foreign ownership, institutional investors, and firm characteristics," Journal of Financial Economics, Elsevier, vol. 59(3), pages 413-440, March.
    34. Ramnath, Sundaresh & Rock, Steve & Shane, Philip, 2008. "The financial analyst forecasting literature: A taxonomy with suggestions for further research," International Journal of Forecasting, Elsevier, vol. 24(1), pages 34-75.
    35. Gonedes, Nicholas J, 1976. "The Capital Market, the Market for Information, and External Accounting," Journal of Finance, American Finance Association, vol. 31(2), pages 611-630, May.
    36. Gustavo Grullon, 2004. "Advertising, Breadth of Ownership, and Liquidity," The Review of Financial Studies, Society for Financial Studies, vol. 17(2), pages 439-461.
    37. Melitz, Jacques, 2007. "The impact of English dominance on literature and welfare," Journal of Economic Behavior & Organization, Elsevier, vol. 64(2), pages 193-215, October.
    38. Mark Clatworthy & Gerald Makepeace & Michael Peel, 2009. "Selection bias and the Big Four premium: New evidence using Heckman and matching models," Accounting and Business Research, Taylor & Francis Journals, vol. 39(2), pages 139-166.
    39. Merton, Robert C, 1987. "A Simple Model of Capital Market Equilibrium with Incomplete Information," Journal of Finance, American Finance Association, vol. 42(3), pages 483-510, July.
    40. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    41. Brainard, S Lael, 1997. "An Empirical Assessment of the Proximity-Concentration Trade-off between Multinational Sales and Trade," American Economic Review, American Economic Association, vol. 87(4), pages 520-544, September.
    42. Craig Doidge & G. Andrew Karolyi & Karl V. Lins & Darius P. Miller & René M. Stulz, 2009. "Private Benefits of Control, Ownership, and the Cross‐listing Decision," Journal of Finance, American Finance Association, vol. 64(1), pages 425-466, February.
    43. Marschan-Piekkari, Rebecca & Welch, Denice & Welch, Lawrence, 1999. "In the shadow: the impact of language on structure, power and communication in the multinational," International Business Review, Elsevier, vol. 8(4), pages 421-440, August.
    44. Bailey, Warren & Andrew Karolyi, G. & Salva, Carolina, 2006. "The economic consequences of increased disclosure: Evidence from international cross-listings," Journal of Financial Economics, Elsevier, vol. 81(1), pages 175-213, July.
    45. Kang, Jun-Koo & Stulz, Rene M., 1997. "Why is there a home bias? An analysis of foreign portfolio equity ownership in Japan," Journal of Financial Economics, Elsevier, vol. 46(1), pages 3-28, October.
    46. Mark T. Bradshaw & Brian J. Bushee & Gregory S. Miller, 2004. "Accounting Choice, Home Bias, and U.S. Investment in Non‐U.S. Firms," Journal of Accounting Research, Wiley Blackwell, vol. 42(5), pages 795-841, December.
    47. Campbell, David & Cornelia Beck, A. & Shrives, Philip, 2005. "A note on comparative language interrogation for content analysis: The example of English vs. German," The British Accounting Review, Elsevier, vol. 37(3), pages 339-350.
    48. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
    49. Joshua D. Coval & Tobias J. Moskowitz, 1999. "Home Bias at Home: Local Equity Preference in Domestic Portfolios," Journal of Finance, American Finance Association, vol. 54(6), pages 2045-2073, December.
    50. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    51. Joshua D. Coval & Tobias J. Moskowitz, 2001. "The Geography of Investment: Informed Trading and Asset Prices," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 811-841, August.
    52. Falkenstein, Eric G, 1996. "Preferences for Stock Characteristics as Revealed by Mutual Fund Portfolio Holdings," Journal of Finance, American Finance Association, vol. 51(1), pages 111-135, March.
    53. Andrea Bonaccorsi, 1992. "On the Relationship Between Firm Size and Export Intensity," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 23(4), pages 605-635, December.
    54. Diamond, Douglas W & Verrecchia, Robert E, 1991. "Disclosure, Liquidity, and the Cost of Capital," Journal of Finance, American Finance Association, vol. 46(4), pages 1325-1359, September.
    55. Bernard Raffournier, 1995. "The determinants of voluntary financial disclosure by Swiss listed companies," European Accounting Review, Taylor & Francis Journals, vol. 4(2), pages 261-280.
    56. Sarkissian, Sergei & Schill, Michael J., 2004. "Are There Permanent Valuation Gains to Overseas Listing? Evidence from Market Sequencing and Selection," Working Papers 05-4, University of Pennsylvania, Wharton School, Weiss Center.
    57. Frank L. Heflin & Kenneth W. Shaw & John J. Wild, 2005. "Disclosure Policy and Market Liquidity: Impact of Depth Quotes and Order Sizes," Contemporary Accounting Research, John Wiley & Sons, vol. 22(4), pages 829-865, December.
    58. Basu, S, 1977. "Investment Performance of Common Stocks in Relation to Their Price-Earnings Ratios: A Test of the Efficient Market Hypothesis," Journal of Finance, American Finance Association, vol. 32(3), pages 663-682, June.
    59. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    60. Bushee, BJ & Noe, CF, 2000. "Corporate disclosure practices, institutional investors, and stock return volatility," Journal of Accounting Research, Wiley Blackwell, vol. 38, pages 171-202.
    61. Arya, Anil & Mittendorf, Brian, 2007. "The interaction among disclosure, competition between firms, and analyst following," Journal of Accounting and Economics, Elsevier, vol. 43(2-3), pages 321-339, July.
    62. Christian Leuz, 2003. "IAS Versus U.S. GAAP: Information Asymmetry–Based Evidence from Germany's New Market," Journal of Accounting Research, Wiley Blackwell, vol. 41(3), pages 445-472, June.
    63. Christopher J. Malloy, 2005. "The Geography of Equity Analysis," Journal of Finance, American Finance Association, vol. 60(2), pages 719-755, April.
    64. Choi, Jongmoo Jay & Jiang, Cao, 2009. "Does multinationality matter? Implications of operational hedging for the exchange risk exposure," Journal of Banking & Finance, Elsevier, vol. 33(11), pages 1973-1982, November.
    65. Alves, Paulo & Ferreira, Miguel, 2008. "Who Owns the Largest Firms Around the World?," MPRA Paper 52355, University Library of Munich, Germany.
    66. Tomáš Dvořák, 2005. "Do Domestic Investors Have an Information Advantage? Evidence from Indonesia," Journal of Finance, American Finance Association, vol. 60(2), pages 817-839, April.
    67. Grinblatt, Mark & Keloharju, Matti, 2000. "The investment behavior and performance of various investor types: a study of Finland's unique data set," Journal of Financial Economics, Elsevier, vol. 55(1), pages 43-67, January.
    68. Ali, Ashiq & Chen, Tai-Yuan & Radhakrishnan, Suresh, 2007. "Corporate disclosures by family firms," Journal of Accounting and Economics, Elsevier, vol. 44(1-2), pages 238-286, September.
    69. Vicentiu M. Covrig & Mark L. Defond & Mingyi Hung, 2007. "Home Bias, Foreign Mutual Fund Holdings, and the Voluntary Adoption of International Accounting Standards," Journal of Accounting Research, Wiley Blackwell, vol. 45(1), pages 41-70, March.
    70. John Ammer & Sara B. Holland & David C. Smith & Francis E. Warnock, 2008. "Why do U.S. cross-listings matter?," International Finance Discussion Papers 930, Board of Governors of the Federal Reserve System (U.S.).
    71. Coen, Alain & Desfleurs, Aurelie & L'Her, Jean-Francois & Suret, Jean-Marc, 2005. "Another look at factors explaining quality of financial analysts' forecasts: Evidence from the Asian emerging markets," Journal of Multinational Financial Management, Elsevier, vol. 15(4-5), pages 414-434, October.
    72. repec:bla:scandj:v:95:y:1993:i:1:p:97-109 is not listed on IDEAS
    73. Cooper, Ian & Kaplanis, Evi, 1994. "Home Bias in Equity Portfolios, Inflation Hedging, and International Capital Market Equilibrium," The Review of Financial Studies, Society for Financial Studies, vol. 7(1), pages 45-60.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Stolowy, Hervé & Jeanjean, Thomas & Erkens, Michael, 2011. "The economic consequences of increasing the international visibility of financial reports," HEC Research Papers Series 957, HEC Paris.
    2. Thomas Jeanjean & Hervé Stolowy & Michael Erkens, 2012. "Economic consequences of adopting English for annual reports," Post-Print hal-00690931, HAL.
    3. Bailey, Warren & Andrew Karolyi, G. & Salva, Carolina, 2006. "The economic consequences of increased disclosure: Evidence from international cross-listings," Journal of Financial Economics, Elsevier, vol. 81(1), pages 175-213, July.
    4. Hamberg, Mattias & Mavruk, Taylan & Sjögren, Stefan, 2013. "Investment allocation decisions, home bias and the mandatory IFRS adoption," Journal of International Money and Finance, Elsevier, vol. 36(C), pages 107-130.
    5. Anil Mishra, 2011. "Australia’s equity home bias and real exchange rate volatility," Review of Quantitative Finance and Accounting, Springer, vol. 37(2), pages 223-244, August.
    6. Jeanjean, Thomas & Lesage, Cédric & Stolowy, Hervé, 2010. "Why do you speak English (in your annual report)?," The International Journal of Accounting, Elsevier, vol. 45(2), pages 200-223, June.
    7. Nicolas Coeurdacier & Hélène Rey, 2013. "Home Bias in Open Economy Financial Macroeconomics," Journal of Economic Literature, American Economic Association, vol. 51(1), pages 63-115, March.
    8. Bae, Kee-Hong & Stulz, René M. & Tan, Hongping, 2008. "Do local analysts know more? A cross-country study of the performance of local analysts and foreign analysts," Journal of Financial Economics, Elsevier, vol. 88(3), pages 581-606, June.
    9. Abdioglu, Nida & Bamiatzi, Vassiliki & Cavusgil, S.Tamer & Khurshed, Arif & Stathopoulos, Konstantinos, 2015. "Information asymmetry, disclosure and foreign institutional investment: An empirical investigation of the impact of the Sarbanes-Oxley Act," International Business Review, Elsevier, vol. 24(5), pages 902-915.
    10. Eduard Gaar & David Scherer & Dirk Schiereck, 2022. "The home bias and the local bias: A survey," Management Review Quarterly, Springer, vol. 72(1), pages 21-57, February.
    11. Lee, Junyong & Lee, Kyounghun & Oh, Frederick Dongchuhl, 2023. "International portfolio diversification and the home bias puzzle," Research in International Business and Finance, Elsevier, vol. 64(C).
    12. Fang Cai & Francis E. Warnock, 2004. "International diversification at home and abroad," International Finance Discussion Papers 793, Board of Governors of the Federal Reserve System (U.S.).
    13. Ahearne, Alan G. & Griever, William L. & Warnock, Francis E., 2004. "Information costs and home bias: an analysis of US holdings of foreign equities," Journal of International Economics, Elsevier, vol. 62(2), pages 313-336, March.
    14. Daly, Kevin & Vo, Xuan Vinh, 2013. "The determinants of home bias puzzle in equity portfolio investment in Australia," International Review of Financial Analysis, Elsevier, vol. 27(C), pages 34-42.
    15. Giofré, Maela, 2013. "International diversification: Households versus institutional investors," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 145-176.
    16. Portes, Richard & Rey, Helene, 2005. "The determinants of cross-border equity flows," Journal of International Economics, Elsevier, vol. 65(2), pages 269-296, March.
    17. Boubaker, Sabri & Derouiche, Imen & Lasfer, Meziane, 2015. "Geographic location, excess control rights, and cash holdings," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 24-37.
    18. Jan Diebecker & Friedrich Sommer, 2017. "The impact of corporate sustainability performance on information asymmetry: the role of institutional differences," Review of Managerial Science, Springer, vol. 11(2), pages 471-517, March.
    19. Roque, Vanda & Cortez, Maria Céu, 2014. "The determinants of international equity investment: Do they differ between institutional and noninstitutional investors?," Journal of Banking & Finance, Elsevier, vol. 49(C), pages 469-482.
    20. Liljeblom, Eva & Loflund, Anders, 2005. "Determinants of international portfolio investment flows to a small market: Empirical evidence," Journal of Multinational Financial Management, Elsevier, vol. 15(3), pages 211-233, July.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-00479511. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.