Information‐Processing Costs and Breadth of Ownership

Jeong‐Bon Kim · Bing Li · Zhenbin Liu

68 citations0/0 files storedContemporary Accounting Research

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Financial Reporting and XBRL Corporate Finance and Governance Auditing, Earnings Management, Governance

Abstract

ABSTRACT Using the U.S. Securities and Exchange Commission's mandate of eXtensible Business Reporting Language (XBRL) as a natural experiment, this study investigates whether and how the decreased information‐processing costs brought about by XBRL influence firms’ breadth of share ownership. We find that the XBRL mandate is associated with an increase in the total number of a firm's shareholders. This finding is consistent with the notion that XBRL facilitates a more transparent environment and decreases information‐processing costs, thereby attracting more shareholders in general. More interestingly, we find that while XBRL adoption is associated with an increase in share ownership of individual and non‐U.S. foreign institutional investors, it is associated with a decrease in share ownership of U.S. domestic institutional investors. Further evidence shows that this asymmetric shift in share ownership is more pronounced for more complex firms. Our findings, taken together, suggest that the decreased information‐processing costs brought about by XBRL help firms establish a level playing field by reducing the information disadvantages of individual and foreign institutional investors over domestic institutional investors. Our results are robust to potential endogeneity concerns and alternative research designs.

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2021When the tail wags the dog? Digitalisation and corporate reporting 2021eXtensible Business Reporting Language (XBRL): A Review and Implications for Future Research 2021Information processing costs and corporate tax avoidance: Evidence from the SEC’s XBRL mandate 2021Digital Corporate Reporting: Research Developments and Implications 2020Digital corporate reporting and value relevance: evidence from the US and Japan

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