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

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  • Ziye Zhao
  • Qiujun Wu
  • Jianbo Chen

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.

Suggested Citation

  • Ziye Zhao & Qiujun Wu & Jianbo Chen, 2018. "Is the world flat? Economic consequences of geographic information in financial reports," China Journal of Accounting Studies, Taylor & Francis Journals, vol. 6(1), pages 24-44, January.
    • Handle: RePEc:taf:rcjaxx:v:6:y:2018:i:1:p:24-44
    DOI: 10.1080/21697213.2018.1480168
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