I was on a panel session at DIRK (the German Investor Relations Society) in Frankfurt yesterday. We were talking about ways and means for German companies to attract international investors, debating a set of thoughtful, and not entirely uncontroversial theses developed by Ralf Frank, the MD at DVFA.
Stefan Jekel, from NYSE, had a great analogy. He made the point that better reporting leads to better liquidity and greater market capitalisation, and had the academic research to prove it. But you don’t actually need all the equations. Stefan points out that to see "information asymmetry" at work, just head on down to your local used car lot. The more information, and more certainty you have about a car, the more you are likely to pay. Simple, but true. Millions of people prove that on Ebay everyday. The auctions that boast context, features, history and explanations do better, for otherwise identical items, than those with the bare necessities.
A good question posed after the session: "If XBRL can help analysts build faster, better and deeper models, and regulators can use it to drive convergence projects that bring accounting rules closer together, why isn’t everyone using it already?". My answer was three-fold: Education, Education and Education. The "enlightened self-interest" required of companies and account preparers to go to the (fairly small, in real terms) effort of publishing XBRL versions of their accounts is logical, but needs people to think at least one step beyond their own outbox.
True, it’s the analysts, bankers, regulators and counter-parties that are the initial beneficiaries of XBRL formatted disclosures, but (a) preparers don’t just produce accounts for publication because the law says they have to, they also produce them in order to gain access to capital; and (b) corporates that have started to think about XBRL in terms of improving the internal reporting and consolidation process quickly understand that the same issues exist outside their own organisational walls.
An interesting day. Thanks to Susanne Minneker and DIRK for bringing the panel together.