Does Information-Processing Cost Affect Firm-Specific Information Acquisition? Evidence from XBRL Adoption

Abstract

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.

The externalities of credit default swaps on stock return synchronicity

“…In terms of special events, Kim and Shi () show that synchronicity is lower for adopters of international financial reporting standards (IFRS) than for nonadopters, indicating that IFRS adoption improves a firm's specific information environment. Similar results are found for firms adopting extensible business reporting language (Dong et al, ).…”

“…Their work reveals that stock return synchronicity is negatively related to insider trading. Overall, stock return synchronicity has become a well-established measure in the financial economics literature with respect to the amount of firm-specific information contained in stock prices (Bai, Hu, Liu, & Zhu, 2017;Crawford et al, 2012;Dong, Li, Lin, & Ni, 2016;Ferreira & Laux, 2007;Kim & Shi, 2012).…”

Does Limited Attention Constrain Investors’ Acquisition of Firm‐specific Information?

“…where SYNC i,t is the stock return synchronicity for stock i in year t; and LNMED i,t , our variable of interest, is defined as the natural log of one plus the number of media articles covering stock i in year t. Measuring stock return synchronicity and media coverage in the same period is thus consistent with our previous assertion that increased attention affects contemporaneous firm-specific information acquisition. As for other control variables, we follow prior literature and include common determinants of stock return synchronicity (Roll, 1988;Piotroski and Roulstone, 2004;Hutton et al, 2009;Dasgupta et al, 2010;Crawford et al, 2012;Kim and Shi, 2012;Dong et al, 2014). LME i,t-1 measures firm size, and is defined as the natural log of market capitalization as of the last fiscal year end.…”

“…Stock return synchronicity has been extensively employed in prior literature to measure firm-specific information (Piotroski and Roulstone, 2004;Hutton et al, 2009;Kim and Shi, 2011;Crawford et al, 2012;Dong et al, 2014). Its capability of measuring a firm's informational efficiency has also received empirical support (Durnev et al, 2003;Durnev et al, 2004).…”

O Estado Da Arte Da Produção Científica Sobre a Linguagem XBRL (Extensible Business Reporting Language)

“…Porém, mesmo com as opo-sições à adoção, a implementação da XBRL é importante, visto que pode aumentar expressivamente a eficiência, a confiabilidade e precisão quanto ao reporte de informações contábeis (FAREWELL, 2006). Pode ainda causar diminuição significativa de tempo quanto à forma de processos da informação, bem como reduzir custos operacionais (DONG et al 2016).…”