Reporting Technologies and Textual Readability: Evidence from the XBRL Mandate

Information Systems Research, Forthcoming

HEC Paris Research Paper No. MOSI-2021-1422

50 Pages Posted: 6 Apr 2021 Last revised: 23 Apr 2021

See all articles by Xitong Li

Xitong Li

HEC Paris - Information Systems and Operations Management

Hongwei (Harry) Zhu

University of Massachusetts Lowell

Luo Zuo

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: April 22, 2021

Abstract

Financial reporting technologies can significantly affect how firms construct and disseminate quantitative and qualitative disclosures. Leveraging the opportunity created by the eXtensible Business Reporting Language (XBRL) mandate in the United States, we use a difference-in-differences approach to examine whether and how a firm’s XBRL adoption affects the readability of its textual disclosures. We find that the initial adopters’ HTML-formatted annual reports become harder to read after the XBRL mandate. Further analysis reveals that this effect is concentrated among adopters with more quantitative disclosures, those with smaller firm size, and those with a higher level of financial complexity. Importantly, we show that managers’ reduced attention to preparing HTML-formatted annual reports, rather than increased disclosures, is likely the explanation for this decrease in textual readability. We also find that the negative effect on textual readability persists at least in the subsequent year. Taken together, our results suggest that although XBRL can standardize numerical disclosures, its initial adoption can divert managerial attention and result in reduced readability of textual disclosures.

Keywords: XBRL, reporting technologies, readability, limited attention, difference-in-differences

JEL Classification: M21, M41, M48

Suggested Citation

Li, Xitong and Zhu, Hongwei and Zuo, Luo, Reporting Technologies and Textual Readability: Evidence from the XBRL Mandate (April 22, 2021). Information Systems Research, Forthcoming, HEC Paris Research Paper No. MOSI-2021-1422, Available at SSRN: https://ssrn.com/abstract=3819017

Xitong Li (Contact Author)

HEC Paris - Information Systems and Operations Management ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

Hongwei Zhu

University of Massachusetts Lowell ( email )

One University Avenue
Lowell, MA 01854
United States

Luo Zuo

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

349 Sage Hall
Ithaca, NY 14853
United States
607-255-4002 (Phone)

HOME PAGE: http://www.johnson.cornell.edu/faculty-research/faculty/lz352/

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