The Association between Extensions in XBRL Disclosures and Financial Information Environment

Abstract

This study examines the association between XBRL extensions and financial information environments of firms, where “financial information environment” refers to the degree to which a firm's financial information is reflected in the information held/used by investors. An XBRL extension is a customized definition of a financial concept or reporting situation that is not available in the U.S. GAAP Financial Reporting Taxonomy. In 2009, the U.S. Securities and Exchange Commission (SEC) allowed firms to begin to use extensions to add new concepts in their financial disclosures. Critics express concerns that the reporting discretion permitted under the XBRL mandate will reduce comparability of financial disclosures and complicate financial analysis. Proponents contend that XBRL extensions will provide users with new and relevant information. To evaluate the competing views, we employ several proxies for financial information environment and perform analyses for early and later phases of XBRL adoption. We find that XBRL extensions are negatively (positively) associated with financial information environments of firms at the early (later) phases of XBRL adoption. The results for later periods of XBRL adoption provide support for the SEC's policy that allows registrants to use XBRL extensions to increase users' understanding of the information in financial statements.

The Relevance of XBRL Voluntary Disclosure for Stock Market Valuation: The Role of Corporate Governance

“…In 2006, the SEC contracted with XBRL US to develop the foundation taxonomy. The US GAAP Financial Reporting Taxonomy was designed to represent common reporting practices and support the disclosure requirements of US GAAP, allowing filers to tag information in their financial statements with the appropriate tags in the US GAAP Financial Reporting Taxonomy (Debreceny et al, 2011; Li & Nwaeze, ). For its part, the IFRS Foundation promotes XBRL use and supports the move towards structured electronic reporting by producing the IFRS Taxonomy for XBRL filings.…”

Digital Corporate Reporting: Research Developments and Implications

“…A related stream of research examines how differences in the nature of digital reporting, in terms of the granularity of tagging and the use of firm-specific reporting 'extensions' , is associated with capital market indicators. More customised reporting, measured by XBRL extensions, is found to be positively associated with indicators of information efficiency (Li and Nwaeze 2015), value relevance (Cormier et al 2019) and negatively associated with the bid-ask spread (Li and Nwaeze 2015). Li and Nwaeze (2018) find that additional XBRL disclosure extensions used by preparers in excess of what is used in the industry are positively associated with analyst following and forecast accuracy and negatively associated with forecast dispersion.…”

The Impact of Adoption of The XBRL on the Development of Stock Markets

“…This could eliminate one of the important objectives of the adoption of XBRL, which is the comparability (Boritz & No, 2008). Li and Nwaeze (2015) found that XBRL extensions in the early phases of the adoption of XBRL impact negatively companies' information environment and impact positively companies' information environment at later phases of the XBRL adoption. Li and Nwaeze (2015) argued that companies acquire, over time, more skill and sophistication in their extension practices and extensions become more consistent, comparable, and precise.…”