Does XBRL Adoption Reduce the Cost of Equity Capital?

Li, Oliver Zhen; Lin, Yupeng; Ni, Chen Kai

doi:10.2139/ssrn.2131001

Cited by 38 publications

(38 citation statements)

References 38 publications

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“…Previous research finds that the use of XBRL yields several benefits: reduced information asymmetry between corporate insiders and outside stakeholders (J. W. Kim et al 2012), enlarged investor base or breadth of ownership (J.-B. Kim et al 2018), improved analyst forecast quality (Liu et al 2014), decreased cost of capital (Li et al 2013), increased firm-specific information capitalized into stock prices (Dong et al 2016), and decreased credit default swap spreads (Griffin et al 2014). The focus of this research has been largely on the capital market consequences of XBRL adoption from the perspective of outside investors.…”

Section: Introductionmentioning

confidence: 99%

Does XBRL Adoption Constrain Earnings Management? Early Evidence from Mandated U.S. Filers

Kim

Lim

2019

Contemporary Accting Res

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We examine whether the use of eXtensible Business Reporting Language (XBRL) for financial reporting (i.e., interactive data submissions) reduces earnings management during the period of XBRL implementation by the SEC. Using a sample of mandated XBRL filers, we compare the magnitude of absolute discretionary accruals in the XBRL adoption quarters with that in the non‐adopting quarters. We also take advantage of staggered (three‐stage phase‐in) XBRL implementations to perform difference‐in‐differences analyses. Our results show that absolute discretionary accruals decrease significantly from the pre‐ to the post‐XBRL period, suggesting that XBRL adoption constrains earnings management via discretionary accrual choices. Our analyses further reveal that the use of standardized official XBRL elements significantly reduces the levels of discretionary accruals, while the use of customized extension elements does not, suggesting that the former discourages accrual‐based earnings management, while the latter does not. Our results are robust to a variety of sensitivity checks.

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Section: Introductionmentioning

confidence: 99%

Does XBRL Adoption Constrain Earnings Management? Early Evidence from Mandated U.S. Filers

Kim

Lim

2019

Contemporary Accting Res

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“…Ly (2012) and Liu et al (2014) suggest that early mandatory XBRL reports attract analysts' attention, increase analyst coverage of reporting firms, and improve the quality of analyst earnings forecasts. Li et al (2012) find mandatory XBRL reporting reduces the cost of capital. Using data from the first year of mandatory XBRL reporting, Kim et al (2012) find that XBRL disclosures decrease information risk and information asymmetry.…”

mentioning

confidence: 99%

Does the XBRL Reporting Format Provide Incremental Information Value? A Study Using XBRL Disclosures During the Voluntary Filing Program

Efendi

Park

Subramaniam

2016

Abacus

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This study investigates whether the eXtensible Business Reporting Language (XBRL) reporting format provides incremental information value beyond the same 10K/10Q filings previously provided in HTML format. Using a sample from the XBRL Voluntary Filing Program, we document a significant increase in stock price variance on the day when voluntary XBRL reports are filed. We find market response is stronger when more content is filed on the same day. To evaluate relative information value, we decompose the quarterly return variance for three primary news announcements related to earnings including earnings announcement, HTML filing, and XBRL filing. We find XBRL filings have larger relative information value than HTML filings. Our results indicate that the XBRL reporting format provides incremental information content.What we need is something that will give individuals faster access to better information that they can easily use and understand. We need to make searches for information easier. It should be easy to call up information about any company you choose. You should be able to download it and use it in the personal software of your choice. And you then should be able to easily analyze and compare the data with the same information from other companies. We want to make the numbers derived from financial statements vastly more accurate. And we want to allow companies to communicate with investors on a constant basis.

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“…For example, Li et al (2013) and Liu et al (2014) find that XBRL adoption increases analyst coverage and forecast accuracy, while it decreases analyst forecast dispersion. Li et al (2013) also show a reduction in cost of capital and an improvement in stock liquidity after firms adopt XBRL. Dong et al (2016) argue that the XBRL mandate reduces stock price synchronicity.…”

Section: Xbrl Background and Related Studiesmentioning

confidence: 99%

“…On the one hand, the XBRL mandate reduces the cost of following a firm, and thus facilitates coverage of firm financial data by third parties, including analysts, media, banks, credit rating agencies, and other third-party XBRL intermediaries (Bhushan 1989;Barth et al 2001). For example, Li et al (2013) and Liu et al (2014) find that XBRL adoption increases the number of analysts following a firm, who in turn generate more financial data and enlarge the total information available to investors. On the other hand, firms weigh the costs and benefits of disclosure (Diamond and Verrecchia 1991).…”

Section: Impact Of Xbrl Adoption On Breadth Of Ownershipmentioning

confidence: 99%

Information‐Processing Costs and Breadth of Ownership

Kim

Liu

2019

Contemporary Accting Res

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Using the U.S. Securities and Exchange Commission's mandate of eXtensible Business Reporting Language (XBRL) as a natural experiment, this study investigates whether and how the decreased information‐processing costs brought about by XBRL influence firms’ breadth of share ownership. We find that the XBRL mandate is associated with an increase in the total number of a firm's shareholders. This finding is consistent with the notion that XBRL facilitates a more transparent environment and decreases information‐processing costs, thereby attracting more shareholders in general. More interestingly, we find that while XBRL adoption is associated with an increase in share ownership of individual and non‐U.S. foreign institutional investors, it is associated with a decrease in share ownership of U.S. domestic institutional investors. Further evidence shows that this asymmetric shift in share ownership is more pronounced for more complex firms. Our findings, taken together, suggest that the decreased information‐processing costs brought about by XBRL help firms establish a level playing field by reducing the information disadvantages of individual and foreign institutional investors over domestic institutional investors. Our results are robust to potential endogeneity concerns and alternative research designs.

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Does XBRL Adoption Reduce the Cost of Equity Capital?

Cited by 38 publications

References 38 publications

Does XBRL Adoption Constrain Earnings Management? Early Evidence from Mandated U.S. Filers

Does XBRL Adoption Constrain Earnings Management? Early Evidence from Mandated U.S. Filers

Does the XBRL Reporting Format Provide Incremental Information Value? A Study Using XBRL Disclosures During the Voluntary Filing Program

Information‐Processing Costs and Breadth of Ownership

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