Information-Processing Costs and Breadth of Ownership

Posted: 5 Aug 2018

See all articles by Jeong-Bon Kim

Jeong-Bon Kim

City University of Hong Kong

Bing Li

City University of Hong Kong (CityUHK)

Zhenbin Liu

Hong Kong Baptist University

Date Written: July 17, 2018

Abstract

Using the U.S. Securities and Exchange Commission’s mandate of extensible Business Reporting Language (XBRL) as a natural experiment, this study investigates whether and how the decreased information-processing costs brought about by XBRL influence firms’ breadth of share ownership. We find that the XBRL mandate is associated with an increase in the total number of a firm’s shareholders. This finding is consistent with the notion that XBRL facilitates a more transparent environment and decreases information-processing costs, thereby attracting more shareholders in general. More interestingly, we find that while XBRL adoption is associated with an increase in share ownership of individual and non-U.S. foreign institutional investors, it is associated with a decrease in share ownership of U.S. domestic institutional investors. Further evidence shows that this asymmetric shift in share ownership is more pronounced for more complex firms. Our findings, taken together, suggest that the decreased information-processing costs brought about by XBRL help firms establish a level-playing field by reducing the information disadvantages of individual and foreign institutional investors over domestic institutional investors. Our results are robust to potential endogeneity concerns and alternative research designs.

Keywords: Information-Processing Costs; XBRL; Breadth of Ownership; Informational Barriers

JEL Classification: M41; K22; G23

Suggested Citation

Kim, Jeong-Bon and Li, Bing and Liu, Zhenbin, Information-Processing Costs and Breadth of Ownership (July 17, 2018). Contemporary Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3215246

Jeong-Bon Kim (Contact Author)

City University of Hong Kong ( email )

Department of Accountancy
83 Tat Chee Avenue
Kowloon Tong
Hong Kong
852-3442-7909 (Phone)

Bing Li

City University of Hong Kong (CityUHK) ( email )

83 Tat Chee Avenue
Department of Accountancy, AC3
Kowloon
Hong Kong

HOME PAGE: http://www.cb.cityu.edu.hk/staff/bingli/

Zhenbin Liu

Hong Kong Baptist University ( email )

Kowloon Tong, Kowloon
Hong Kong

HOME PAGE: http://aclw.hkbu.edu.hk/eng/faculty/admin-details.jsp?id=zbliuHKB&cv=00069&cid=306&cp=1

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