Digital corporate reporting and value relevance: evidence from the US and Japan

Abstract

PurposeThe study improves current understanding concerning the implications of digital corporate reporting technology on the informativeness of accounting information.Design/methodology/approachIt looks at how XBRL, an exemplar digital corporate financial reporting technology, affects value relevance of accounting information in the US and Japan, two key jurisdictions where XBRL has been mandated. We operationalise stock price and return value relevance models to assess and compare predicted associations between selected accounting measures and market value of equity in these countries.FindingsWe predict that the selected accounting measures are more value relevant after XBRL was mandated than before. We find evidence to support our prediction for the US sample. We also predict and find that the contribution of XBRL to the value relevance of the selected accounting measures is greater in the US than in Japan. Overall, our evidence provides support that digital corporate reporting technology enhances relevance and reliability of accounting measures.Originality/valueThe study appears to be the first to have examined the impact of XBRL on value relevance whilst comparing between two major jurisdictions. The study extends emerging but limited literature concerning the benefits of digital corporate financial reporting for enhancing the communication between firms and users of financial information. The findings are useful to both users of financial information and standard setters.

Digital Corporate Reporting: Research Developments and Implications

“…Supported Shan and Troshani (2020) the improvement is consistent with expectations of XBRL-based digital corporate reporting. In general, this research provides evidence of the impact of digital reporting by finding consistent associations between the adoption of XBRL-based corporate reporting and various capital market indicators.…”

The relevance of XBRL extensions for stock markets: evidence from cross-listed firms in the US

“…We can here refer to Sassi et al (2021) who show, for a large sample covering 13 countries, that mandatory adoption of XBRL improves stock liquidity. Shan and Troshani (2020) show that, when XBRL became mandatory, the value relevance and reliability of several accounting measures have improved in two different jurisdictions (i.e. the USA and Japan).…”

The Value Relevance of Earnings, Book Values, and Other Accounting Information and the Role of Economic Conditions in Value Relevance: A Literature Review*

“…They find that the stock returns for firms in financial distress are more strongly associated with cash flows from operations than with earnings. Shan and Troshani (2020) look beyond book values and earnings, while including R&D expenses, goodwill, and the value of property, plant, and equipment, to study the value relevance of eXtensible Business Reporting Language (XBRL) implementation in the United States and Japan. The authors find that accounting measures in the post‐XBRL mandate time frame are more value relevant for US firms than pre‐XBRL; however, there was no difference (pre or post) in Japanese firms.…”