Can Detailed Tagging of Footnotes Improve Analysts’ Forecast Accuracy and Dispersion?

• In Event: AIS and the Markets

Abstract

This study investigates whether the SEC rule mandating that firms provide detail tagged financial statement note information in XBRL (eXtensible Business Reporting Language) enhances the readability of 10-K Reports, improving financial analysts’ information environment. First, we describe the impact of detailed tagging requirement on the number of standardized (official) and customized (extension) XBRL tags. We show that the number of customized tags soared due to the requirement. Overall, the number of tags for the notes is greater than the number of tags for primary financial statements. Our findings show that analysts’ forecast error and dispersion for the next quarter earnings estimates decreased after the SEC requirement when into effect. This is consistent with the notion that detail tagged financial statement note information reduces financial analysts’ information processing costs. In addition, our results suggest that the benefits of detail tagged financial statement notes are increasing over time.

Authors

• Andrew J Felo, Nova Southeastern University

• Joung W Kim, Nova Southeastern University

• Jee-Hae Lim, University of Waterloo