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Do XBRL filings enhance informational efficiency? Early evidence from post-earnings announcement drift

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  • Efendi, Jap
  • Park, Jin Dong
  • Smith, L. Murphy

Abstract

In 2009, the Securities Exchange Commission (SEC) mandated public firms to file their financial statements using eXtensible Business Reporting Language (XBRL). The SEC's main motive behind this mandate is that XBRL filings would enhance the informational efficiency in the stock markets by making financial data easier to use and analyze for a broad range of investors. Using a sample from the first wave of mandated XBRL filers, we find a decline in post earnings announcement drift for the good news portfolio in the post-XBRL adoption period. Instead of a drift associated with underreaction, we find that markets overreact to negative earnings surprises for the bad news portfolio during our observation period, which coincides with the financial crisis. We detect limited evidence that XBRL adoption mitigates overreaction, which is another form of market inefficiency. We also find limited evidence that XBRL particularly benefits small investors.

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  • Efendi, Jap & Park, Jin Dong & Smith, L. Murphy, 2014. "Do XBRL filings enhance informational efficiency? Early evidence from post-earnings announcement drift," Journal of Business Research, Elsevier, vol. 67(6), pages 1099-1105.
    • Handle: RePEc:eee:jbrese:v:67:y:2014:i:6:p:1099-1105
    DOI: 10.1016/j.jbusres.2013.05.051
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    2. Jaskowski, Marcin & Rettl, Daniel A., 2023. "Information acquisition costs and credit spreads," Journal of Banking & Finance, Elsevier, vol. 149(C).
    3. Shan, Yuan George & Troshani, Indrit & Richardson, Grant, 2015. "An empirical comparison of the effect of XBRL on audit fees in the US and Japan," Journal of Contemporary Accounting and Economics, Elsevier, vol. 11(2), pages 89-103.
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    5. Gajewski, Jean-François & Li, Li, 2015. "Can Internet-based disclosure reduce information asymmetry?," Advances in accounting, Elsevier, vol. 31(1), pages 115-124.
    6. Elizabeth Blankespoor, 2019. "The Impact of Information Processing Costs on Firm Disclosure Choice: Evidence from the XBRL Mandate," Journal of Accounting Research, Wiley Blackwell, vol. 57(4), pages 919-967, September.
    7. Hyunjung Nam & Won Gyun No & Youngsu Lee, 2017. "Are Commercial Financial Databases Reliable? New Evidence from Korea," Sustainability, MDPI, vol. 9(8), pages 1-23, August.
    8. Indrit Troshani & Nick Rowbottom, 2021. "Digital Corporate Reporting: Research Developments and Implications," Australian Accounting Review, CPA Australia, vol. 31(3), pages 213-232, September.
    9. Josef Fink, 2020. "A Review of the Post-Earnings-Announcement Drift," Working Paper Series, Social and Economic Sciences 2020-04, Faculty of Social and Economic Sciences, Karl-Franzens-University Graz.
    10. Fink, Josef, 2021. "A review of the Post-Earnings-Announcement Drift," Journal of Behavioral and Experimental Finance, Elsevier, vol. 29(C).
    11. Jie Zhou, 2020. "Does one size fit all? Evidence on XBRL adoption and 10‐K filing lag," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(3), pages 3183-3213, September.

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