Impact of XBRL adoption on financial reporting quality: a global evidence

Vincent Konadu Tawiah · Hela Borgi

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Financial Reporting and XBRL Auditing, Earnings Management, Governance Accounting Theory and Financial Reporting

Abstract

Purpose This paper aims to examine the effect of eXtensible Business Reporting Language (XBRL) adoption on financial reporting quality at the country-level (developing and developed countries). Design/methodology/approach This study uses data from 98 developed and developing countries between 2005 and 2018. This study collected data from various sources such as the World Economic Forum, World Development Indicators, World Governance Indicators and XBRL website. Findings The results show that XBRL is associated with an increased financial reporting quality. However, the relationship is stronger in developing countries than in developed countries. This study also finds that the results remain the same after accounting for years of XBRL experience and the effect of accounting globalisation. The results are consistent with the assumption that XBRL-formatted financial statements improve information efficiency through increased searching efficiency, quality of display and comparability. The results are robust to alternative econometric modifications such as controlling for country, year effects and endogeneity. Practical implications The results can potentially assist the XBRL promoters and regulators in expeditiously assessing the benefits of XBRL and advocating its adoption by many countries. The findings offer more motivations for regulators around the world to mandate this new filing standard format. Originality/value This study contributes to the literature by providing empirical evidence on the consequences of XBRL at the country level. This study provides evidence on an important question of whether the XBRL, new information technology in the accounting field, can play a useful role in improving financial reporting.

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References

1983The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields 1998Law and Finance 2010The Worldwide Governance Indicators: Methodology and Analytical Issues 2003Earnings management and investor protection: an international comparison 2007Why would corporations behave in socially responsible ways? an institutional theory of corporate social responsibility 2000The effect of international institutional factors on properties of accounting earnings 2003Incentives versus standards: properties of accounting income in four East Asian countries 2007IFRS Adoption and Accounting Quality: A Review

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