Companies that use XBRL to file financial statements lower their cost of equity capital and increase their stock liquidity, according to a recent study out of Singapore.

Three academics in the accounting department at National University of Singapore studied the filings of 2,302 companies from 2003 to 2011 to see how their cost of equity capital changed through the years they adopted XBRL to submit financial statements to the Securities and Exchange Commission. A handful of voluntary early adopters began using XBRL, which produces machine-readable data to make financial statements easier to search and sort, as early as 2007. The SEC made adoption mandatory beginning in 2009 for the largest public companies, with a second wave adopting in 2010 and the smallest companies getting onboard in 2011.

The study says analyst coverage increases for companies after they adopt XBRL, and their forecasts become more accurate and less dispersed. It also says XBRL reduces the cost to investors of processing information. These effects add up ultimately to greater stock liquidity and a decreased cost of capital, the study says. “These results suggest that a reduction in information processing cost can indirectly affect the cost of equity capital through affecting analyst behavior and increasing stock liquidity,” the authors wrote.

The research pins its findings on complex regression analysis of more than 11,000 observations from the sample group of companies and more than 40 other academic studies. The researchers say not only can they show that the cost of equity declines for XBRL adopters, but that the benefits are most significant for small companies, companies with high growth, and companies that have low analyst coverage or illiquid stocks. Finally, researchers say the benefits were not as strong for the voluntary early adopters, likely because their adoption preceded increased analyst coverage and improved research capability for investors.

“In sum, we provide strong evidence supporting the argument that information processing cost affects the cost of equity capital,” the authors wrote. They claim their research establishes an important link between information processing costs and asset prices and the economic consequences of improving financial reporting practices.