Initial evidence on the market impact of the XBRL mandate
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In 2009, the SEC mandated that financial statements be filed using eXtensible Business Reporting Language (XBRL). The SEC contends that this new search-facilitating technology will reduce informational barriers that separate smaller, less-sophisticated investors from larger, more-sophisticated investors, thereby reducing information asymmetry. However, if some larger investors can leverage their superior resources and abilities to garner greater benefits from XBRL than smaller investors, information asymmetry is likely to increase. Using a difference-in-difference design, we find evidence of higher abnormal bid-ask spreads for XBRL adopting firms around 10-K filings in the year after the mandate, consistent with increased concerns of adverse selection. We also find a reduction in abnormal liquidity and a decrease in abnormal trading volume, particularly for small trades. Additional analyses suggest, however, that these effects may be declining somewhat in more recent years. Collectively, our evidence suggests that a reduction in investors’ data aggregation costs may not have served its intended purpose of leveling the informational playing field, at least during the initial years after mandatory adoption.
KeywordsXBRL Disclosure Processing costs Regulation Information asymmetry Market Liquidity
JEL ClassificationM21 M41 M48
We are grateful to two anonymous referees, Salman Arif, Daniel Beneish, John Core, Anna Costello, Patricia Dechow (Editor), Paul Fischer, Max Hewitt, Charles Lee, Laureen Maines, Greg Miller, Mike Minnis, Joe Piotroski, Marlene Plumlee, Tianshu Qu, Cathy Schrand, Cathy Shakespeare, Nemit Shroff, Dan Taylor, Jim Vincent, Chris Williams, Teri Yohn and workshop participants at Indiana University, Ohio State University, Santa Clara University, University of California—Berkeley, University of Chicago, University of Florida, University of Miami, University of Michigan, University of North Carolina, University of Pennsylvania (Wharton), University of Southern California, University of Utah, Washington University and the 2011 Stanford Summer Camp for helpful discussions. We would also like to thank Bob Rand at the SEC for assistance with identifying XBRL filings. Elizabeth Blankespoor gratefully acknowledges financial support from the Deloitte Doctoral Fellowship, Brian Miller gratefully acknowledges financial support from the Arthur Weimer Faculty Fellowship, and Hal White gratefully acknowledges financial support from Ernst and Young.
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