We examine how information-processing cost affects investors’ acquisition of firm-specific information using a natural experiment resulting from a recent mandate requiring U.S. firms to adopt eXtensible Business Reporting Language (XBRL) when submitting filings to the U.S. Securities and Exchange Commission (SEC). XBRL filings make financial data standardized, tagged, and machine readable. We find that XBRL adoption reduces firms’ stock return synchronicity. The reduction in synchronicity mainly applies to filings under the mandatory program as opposed to the voluntary program. Furthermore, such an effect is more pronounced for opaque and complex firms. Finally, we find that XBRL adoption also reduces price delay.

This study exploits the staggered adoption of the inevitable disclosure doctrine (IDD) by U.S. state courts as an exogenous shock that generates variations in the proprietary costs of disclosure. We find that firms respond to IDD adoption by reducing the level of disclosure regarding their customers' identities, supporting the proprietary cost hypothesis. Our results are stronger for firms in industries with a higher degree of entry threats, for firms in more volatile industries, and for firms with a lower degree of external financing dependence. Overall, this study represents one of the first efforts in identifying the causal effect of proprietary costs of disclosure on the supply of disclosure. JEL codes: D82; D83; K11; L1; M41

We examine efficiency improvement associated with audit firm mergers. Our analysis is made possible by a unique dataset of audit hours in China. We find a significant reduction in audit hours, unaccompanied by a deterioration in audit quality, of merged audit firms. Further, we find a larger reduction in audit hours when acquirers are Chinese domestic Big 10 audit firms and when client firms are more complex. These results are consistent with the notion of economies of scale arising from horizontal mergers. However, enhanced efficiency does not necessarily reduce audit fees. Instead, we find an increase in audit fees when acquirers are international Big 4 audit firms even when we control for possible changes in market power. This premium is at least partially due to the certification effect of international Big 4 audit firms.

We document peer effect as an important factor in determining corporate voluntary disclosure policies. Our identification strategy relies on a discontinuity in the distribution of institutional ownership caused by the annual Russell 1000/2000 index reconstitution. Around the threshold of the Russell 1000/2000 index, the top Russell 2000 index firms experience a significant jump in institutional ownership compared with their closely neighbored bottom Russell 1000 index firms due to index funds' benchmarking strategies. The increase in institutional ownership and resultant improvement in the information environment of the top Russell 2000 index firms create pressures on their industry peers to increase voluntary disclosures. Consistent with this prediction, we find that the discontinuously higher institutional ownership of the top Russell 2000 index firms significantly increases industry peers' likelihood and frequency of issuing management forecasts. Further analyses show that such an effect could be driven by firms' incentive to compete for capital. JEL Classifications: G23; G34; M41; D80. Data Availability: Data are available from the public sources cited in the text.

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