Reporting Technologies and Textual Readability: Evidence from the XBRL Mandate

Xitong Li, Hongwei (Harry) Zhu and Luo Zuo
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Xitong Li: HEC Paris
Hongwei (Harry) Zhu: University of Massachusetts Lowell
Luo Zuo: National University of Singapore

No 1422, HEC Research Papers Series from HEC Paris

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 (search for similar items in EconPapers)
JEL-codes: M21 M41 M48 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2021-04-06
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1422

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