Initial Evidence on the Market Impact of the XBRL Mandate

Abstract

In 2009, the SEC mandated that financial statements be filed using eXtensible Business Reporting Language (XBRL). The SEC contends that this new search-facilitating technology will reduce informational barriers that separate smaller, less-sophisticated investors from larger, more-sophisticated investors, thereby reducing information asymmetry. However, if some larger investors are able to leverage their superior resources and abilities to garner greater benefits from XBRL than smaller investors, information asymmetry is likely to increase. Using a difference-in-difference design, we find evidence of higher abnormal bid-ask spreads for XBRL adopting firms around 10-K filings in the initial year after the mandate, consistent with increased concerns of adverse selection. We also find a reduction in abnormal liquidity and a decrease in abnormal trading volume, particularly for small trades. Additional analyses suggest, however, that these effects may be declining somewhat in more recent years. Collectively, our evidence suggests that a reduction in investors’ data aggregation costs may not have served its intended purpose of leveling the informational playing field, at least during the initial years after mandatory adoption.

Keywords: XBRL, interactive data, information asymmetry, bid-ask spread, price impact, trading volume, search-facilitating technology

JEL Classification: D82, D83, G14, M41, M49