Impact of Extensions in XBRL Disclosure on Analysts’ Forecast Behavior

• In Event: Forecasting, Accruals, and Benford's Law

Abstract

This paper investigates the impact of extensions in eXtensible Business
Reporting Language (XBRL) disclosure on analyst forecast behavior in the U.S. Using a sample of Phase I, Phase II, and Phase III filers from June 15, 2009 to December 31, 2012, we test the association between abnormal extensions and the number of analysts following a firm and between abnormal extensions and the dispersion of analysts’ forecasts. We find that, on average, abnormal extensions are positively associated with the number of analysts’ following, and negatively associated with the dispersion of forecasts. In addition, we find that the association between abnormal extension and analyst following is insignificant in early year, but positive and significant in later years. This result is in line with the view that early-period extensions were largely experimental, inconsistent, and difficult to interpret, and/or because analysts had limited experience with the new disclosure format. We find corroborating evidence that the association between abnormal extension and dispersion of analyst forecast is reliably positive in first year, but negative and significant in later years. Our findings support the SEC’s policy that allows public companies to create extensions as a means of enhancing the interpretation of corporate financial disclosures.

Authors

• Shiyou Li, Texas A&M University - Commerce

• Emeka T Nwaeze, University of Texas-San Antonio