Impact of XBRL on Adopters’ Financial Reporting Quality and Cost of Capital

Posted: 29 Aug 2013

See all articles by Tien‐Shih Hsieh

Tien‐Shih Hsieh

University of Massachusetts Dartmouth - Department of Accounting & Finance

Jean C. Bedard

Bentley University - Department of Accountancy

Rani Hoitash

Bentley University - Department of Accountancy

Date Written: August 28, 2013

Abstract

This study investigates whether corporate governance quality affects differences in financial reporting quality and cost of capital of public companies associated with adoption of XBRL in the Voluntary Filing Program (VFP) launched by the Securities and Exchange Commission (SEC) in March 2005. Using the degree of earnings management to measure financial reporting quality and using the cost of equity capital measure proposed by Easton (2004) to estimate cost of equity capital, we hypothesize and find that voluntary adopters with superior corporate governance quality are more likely to have better financial reporting quality after their XBRL adoption, relative to those with weak corporate governance quality. We also find a significant interaction effect of corporate governance quality and XBRL adoption on companies’ cost of equity capital. These findings suggest that the impact of XBRL on its adopters’ financial reporting quality and cost of equity capital is contingent on adopters’ corporate governance quality.

Keywords: XBRL, Corporate governance, Financial reporting quality, Cost of capital

JEL Classification: M41, G30

Suggested Citation

Hsieh, Tien-Shih and Bedard, Jean C. and Hoitash, Rani, Impact of XBRL on Adopters’ Financial Reporting Quality and Cost of Capital (August 28, 2013). Available at SSRN: https://ssrn.com/abstract=2317323

Tien-Shih Hsieh

University of Massachusetts Dartmouth - Department of Accounting & Finance ( email )

285 Old Westport Road
N Dartmouth, MA 02747-2300
United States

Jean C. Bedard

Bentley University - Department of Accountancy ( email )

175 Forest Street
Waltham, MA 02452
United States
781-891-2410 (Phone)
781-891-2896 (Fax)

Rani Hoitash (Contact Author)

Bentley University - Department of Accountancy ( email )

175 Forest Street
Waltham, MA 02452-4705
United States

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