Does XBRL Adoption Constrain Earnings Management? Early Evidence from Mandated U.S. Filers

Posted: 21 May 2019

See all articles by Jeong-Bon Kim

Jeong-Bon Kim

City University of Hong Kong

Joung W. Kim

Nova Southeastern University

Jee-Hae Lim

University of Hawaii, Manoa

Date Written: October 3, 2018

Abstract

We examine whether the use of eXtensible Business Reporting Language (XBRL) for financial reporting (i.e., interactive data submissions) reduces earnings management during the period of XBRL implementation by the U.S. Securities and Exchange Commission. Using a sample of mandated XBRL filers, we compare the magnitude of absolute discretionary accruals in the XBRL adoption quarters with that in the non-adopting quarters. We also take advantage of staggered (three-stage phase-in) XBRL implementations to perform difference-in-differences analyses. Our results show that absolute discretionary accruals decrease significantly from the pre- to the post-XBRL period, suggesting that XBRL adoption constrains earnings management via discretionary accrual choices. Our analyses further reveal that the use of standardized official XBRL elements significantly reduces the levels of discretionary accruals, while the use of customized extension elements does not, suggesting that the former discourages accrual-based earnings management, while the latter does not. Our results are robust to a variety of sensitivity checks.

Keywords: XBRL, earnings management, standardized official element, customized extension

Suggested Citation

Kim, Jeong-Bon and Kim, Joung W. and Lim, Jee-Hae, Does XBRL Adoption Constrain Earnings Management? Early Evidence from Mandated U.S. Filers (October 3, 2018). Contemporary Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3376724

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)

Joung W. Kim

Nova Southeastern University ( email )

3301 College Avenue
Ft. Lauderdale, FL 33314
954-262-5110 (Phone)
954-262-3974 (Fax)

Jee-Hae Lim

University of Hawaii, Manoa ( email )

2404 Maile Way
Honolulu, HI Honolulu 96822
United States
(808) 956-8503 (Phone)
(808) 956-9888 (Fax)

HOME PAGE: http://shidler.hawaii.edu/directory/jee-hae-lim/soa

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