Effects of Information Processing Costs on Price Informativeness: Evidence from XBRL Mandate

41 Pages Posted: 7 Feb 2019 Last revised: 10 Apr 2019

See all articles by Yuyun Huang

Yuyun Huang

The University of Western Australia

Yuan George Shan

The University of Western Australia - UWA Business School

Joey (Wenling) Yang

The University of Western Australia

Date Written: April 9, 2019

Abstract

Using the Securities and Exchange Commission’s eXtensible Business Reporting Language (XBRL) mandate as a pseudo-natural experiment, we identify a causal link between information processing costs and stock price informativeness. We find prices have become more informative after the XBRL mandate, and such effect is upward-trending over the first three years post adoption, which indicates a learning curve for firms and investors. Examining the tagging process reveals that detailed tagging contributes to improved price informativeness, whereas block tagging has no impact. Further, firms with relatively shorter trading age have more benefit from XBRL adoption than older firms, supporting the conjecture that XBRL accelerates the information incorporation process and facilitates the market to learn about younger firms faster.

Keywords: XBRL, Price Informativeness, Tagging Process, Information Processing Costs

JEL Classification: G14, M41, M48

Suggested Citation

Huang, Yuyun and Shan, Yuan George and Yang, Joey (Wenling), Effects of Information Processing Costs on Price Informativeness: Evidence from XBRL Mandate (April 9, 2019). Available at SSRN: https://ssrn.com/abstract=3324198 or http://dx.doi.org/10.2139/ssrn.3324198

Yuyun Huang

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia

Yuan George Shan

The University of Western Australia - UWA Business School ( email )

Crawley, Western Australia 6009
Australia

Joey (Wenling) Yang (Contact Author)

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
AUSTRALIA

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