The Impact of XBRL Adoption on Local Bias: Evidence from Mandated U.S. Filers

62 Pages Posted: 8 Jul 2020

See all articles by Bing Li

Bing Li

City University of Hong Kong (CityUHK)

Zhenbin Liu

Hong Kong Baptist University

Wei Qiang

Harbin Institute of Technology, Shenzhen

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen

Date Written: June 13, 2020

Abstract

This paper investigates how eXtensible Business Reporting Language (XBRL) adoption affects the information advantage of local investors relative to their non-local counterparts. By employing the recent staggered SEC mandates of XBRL as a natural shock, we show that institutional investors’ local bias decreases after firms adopt XBRL when preparing their financial statements. These results hold in a difference-in-difference research design with firm and year fixed effects or using matched nonadopting firms as controls, as well as a regression discontinuity design. The impact of XBRL adoption on reducing local bias can be explained by three economic channels: decreased information processing costs, increased corporate disclosures, and improved analyst coverage. We further find that institutions’ superior stock returns in geographic proximate equity investments significantly reduces after the XBRL mandate. The observed reduction in institutional investors’ local bias within U.S. companies following the XBRL mandate also applies to the international setting. Overall, our findings support regulators’ claim that XBRL adoption levels the playing field between local and non-local investors.

Keywords: Business reporting language; XBRL; Institutional holdings; Local bias

JEL Classification: M41; K22; G23

Suggested Citation

Li, Bing and Liu, Zhenbin and Qiang, Wei and Zhang, Bohui, The Impact of XBRL Adoption on Local Bias: Evidence from Mandated U.S. Filers (June 13, 2020). Journal of Accounting and Public Policy, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3626450

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

Wei Qiang

Harbin Institute of Technology, Shenzhen ( email )

University Town
Nand District
Shenzhen, Guangdong
China

Bohui Zhang (Contact Author)

The Chinese University of Hong Kong, Shenzhen ( email )

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