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Reporting Technologies and Textual Readability: Evidence from the XBRL Mandate

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  • Xitong Li

    (Department of Information Systems and Operations Management, École des hautes études commerciales de Paris (HEC Paris), 78351 Jouy-en-Josas, France)

  • Hongwei Zhu

    (Department of Operations and Information Systems, Manning School of Business, University of Massachusetts, Lowell, Massachusetts 01854)

  • Luo Zuo

    (Samuel Curtis Johnson Graduate School of Management, Cornell University, Ithaca, New York 14850)

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.

Suggested Citation

  • Xitong Li & Hongwei Zhu & Luo Zuo, 2021. "Reporting Technologies and Textual Readability: Evidence from the XBRL Mandate," Information Systems Research, INFORMS, vol. 32(3), pages 1025-1042, September.
    • Handle: RePEc:inm:orisre:v:32:y:2021:i:3:p:1025-1042
    DOI: 10.1287/isre.2021.1012
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