The Economic Impact of the XBRL Mandate: Evidence from Market Reactions

• In Event: The Impact of XBRL

Abstract

We investigate the market reaction to legislative events pertaining to the eXtensible Business Reporting Language (XBRL) mandate. The SEC contends that requiring issuers to use XBRL when filing their financial statements would reduce information processing costs and improve market efficiency. In contrast, skeptics argue that the mandatory adoption of XBRL would impose substantial implementation costs while providing few, if any, benefits to investors. Using stock returns from countries that did not mandate the adoption of XBRL to model normal U.S. returns, we provide evidence of a positive reaction to legislative events related to the XBRL mandate. Moreover, we find that abnormal returns to these events, on average, are higher for firms with a lower analyst following and greater complexity in their business and financial reporting and decreasing in the comparability of those firms’ financial reports.

Authors

• Jie Zhou, National University of Singapore

• Gary Chen, University of Illinois-Chicago