The Association between XBRL Adoption and Market Reactions to Earnings Surprises

• In Event: XBRL and Financial Reporting

Abstract

This paper investigates whether the adoption of XBRL is associated with market reactions to earnings surprises around 10-Q and 10-K filing dates based on a sample of XBRL Phase I, Phase II, and Phase III filers. Our main findings demonstrate that the adoption of XBRL is positively associated with market reactions to earnings surprises around 10-Q and 10-K filing dates only for Phase II, not for Phase I, filers except when a Phase I filer is followed by fewer analysts. Additional tests further show that the hypothesized association is weaker when the interval between earnings announcement dates and filing dates is larger because of the decreasing need for the filing information. Lastly, in the full-sample test, we find that the hypothesized effect also exists for Phase III filers, and we observe an increase in market reaction for Phase II filers after their second year of adoption. We believe this study has policy implications and may alleviate firms’ concerns regarding the benefits of adopting XBRL.

Authors

• Ju-Chun Yen, National Taiwan University

• Tawei (David) Wang, University of Hawaii at Manoa