THE IMPACT OF THE XBRL MANDATE ON MARKET EFFICIENCY

Yu CongMorgan State University

Jia HaoWayne State University

Lin ZouTexas Woman’s University

The Evolution

• EDGAR, 1994-– Replaces paper based SEC filing system– Attempts to structure the electronic filings,

requiring SGML tags and structured key data elements, for instance, FDS.

• HTML and richer electronic contents, 1998-• XBRL, 2009-2012

SEC On Technology• “The vital role of the Internet and electronic communications in

modernizing the disclosure system under the federal securities laws and in promoting transparency, liquidity and efficiency in our trading markets.” (SEC 2008, p.6)

• “create new ways for investors, analysts, and others to retrieve and use financial information in documents filed with [SEC]. For example, users of financial information will be able to download it directly into spreadsheets, analyze it using commercial off-the-shelf software, or use it within investment models in other software formats. Through [XBRL], that is currently static, text-based information can be dynamically searched and analyzed, facilitating the comparison of financial and business performance across companies, reporting periods, and industries.” (SEC 2009)

So, Our Question Is …

• Can XBRL improve liquidity and efficiency?• Extant findings• Kim at al. 2012– Information asymmetry 30 days after filing date is

reduced by the SEC XBRL mandate• Blankespoor at al. Working Paper.– Information asymmetry around filing date is

increased.– XBRL discriminates small investors.

What Remains Not Answered:

• Liquidity:– Reconcile Kim et al. 2012 and Blankespoor 2013.

• Efficiency?– XBRL facilitates price formation?

Theoretical Background

• Conventional wisdom– Common disclosure suppresses private information

• Verrecchia (2001): agents in market – interpret a common disclosure heterogeneously

(Kim and Verrecchia,1994)– possess private information of heterogeneous

quality (Kim and Verrecchia, 1997)– Combine the interpretation with private information

Theoretical Background• A common disclosure stimulates the generation of

new information (private + common contents).• The information is infused into the market when the

possessor uses it to trade (becomes public).• Two observable indicators must appear simultaneously

in a short window around the common disclosure. – Greater information asymmetry– Higher trading volume– Krinsky & Lee 1996– Kandel & Pearson 1995– Barron et al 2002, 2005

Hypothesis I

• H1: After the adoption of XBRL, ceteris paribus, in a short period immediately following 10-K/10-Q filing events, information asymmetry increases.

• As measured by abnormal price impact, the adverse selection component of bid-ask spread (Huang & Stoll, 1996)

Hypothesis II

• H2: After the adoption of XBRL, ceteris paribus, in a short period immediately following 10-K/10-Q filing events, trading volume increases due to lowered information-process costs and more timely information processes.

• As measured by abnormal trading volume

Model

• AQS = α1+ α2*XBRL +∑ αi*CONTROLS+ε;Eq1

• API = α1+ α2*XBRL +∑ αi*CONTROLS+ε; Eq2

• AVOL = α1+ α2*XBRL +∑ αi*CONTROLS+ε;Eq3

• AES = α1+ α2*XBRL +∑ αi*CONTROLS+ε;Eq4

• ADDP = α1+ α2*XBRL +∑ αi*CONTROLS+ε;Eq5

Dependent Variables

Independent Variables

Sample

Pre XBRL Post XBRLVARIABLE mean stddev median mean stddev medianAQS -0.974 39.305 -0.888 10.380 43.090 0.450API 0.241 30.373 -0.361 6.138 31.503 1.007AVOL 0.230 0.680 0.185 0.425 0.723 0.394AES -0.126 33.702 -0.538 8.844 37.944 0.544ADDP 21.642 133.341 10.997 10.183 173.900 2.142ARVOL 1.504 31.139 0.146 17.796 51.934 1.657XBRL 0.000 0.000 0.000 1.000 0.000 1.000TNVR 0.013 0.012 0.009 0.014 0.012 0.010RVOL 0.002 0.003 0.001 0.003 0.005 0.001LEYP 2.727 0.972 2.812 2.821 0.950 2.972ROA 0.003 0.046 0.009 0.004 0.042 0.009BMR 0.667 0.572 0.565 0.638 0.530 0.550LMV 6.788 1.633 6.691 6.941 1.544 6.933ART 0.024 0.020 0.018 0.025 0.022 0.018LANLST 3.210 1.042 3.332 3.372 0.983 3.434F_EER 0.497 0.980 0.195 0.475 0.989 0.168LNIO 1.300 1.385 0.732 1.282 1.387 0.693PIOS 0.666 0.266 0.717 0.691 0.246 0.744PIOCS 0.465 0.188 0.489 0.484 0.178 0.512

Variable API ALVOL AQS AES ADDP ARVOL XBRL TNVR RVOL LEYP ROA BMR LMV ART LANLST F_EER LNIO PIOS PIOCSAPI 0.084 0.453 0.462 -0.04 0.389 0.095 -0.03 0.322 -0.06 -0.02 0.009 -0.09 0.135 -0.087 0.038 -0.06 -0.07 -0.06

**** **** **** *** **** **** **** **** **** **** **** ** **** **** ****ALVOL 0.195 0.046 0.085 0.069 0.304 0.136 0.364 0.297 -0.07 0.02 -0.04 -0.19 0.454 -0.151 0.041 -0.15 -0.03 -0.02

**** *** **** **** **** **** **** **** **** *** **** **** **** *** **** **AQS 0.531 0.115 0.756 -0.03 0.418 0.141 -0.07 0.344 -0.05 -0.03 -0.01 -0.12 0.125 -0.103 0.003 -0.07 -0.09 -0.08

**** **** **** **** **** **** **** **** ** **** **** **** **** **** ****AES 0.558 0.182 0.734 -0.04 0.44 0.128 -0.06 0.396 -0.08 -0.04 -0 -0.13 0.142 -0.113 0.01 -0.07 -0.11 -0.09

**** **** **** ** **** **** **** **** **** *** **** **** **** **** **** ****ADDP -0.2 0.08 -0.25 -0.25 -0.05 -0.04 0.082 -0.05 0.018 0.022 0.005 0.08 0.038 0.055 0.009 0.059 0.011 0.007

**** **** **** **** *** ** **** *** **** ** **** ****ARVOL 0.518 0.49 0.505 0.546 -0.22 0.187 0.029 0.818 -0.12 -0.05 -0.02 -0.2 0.287 -0.159 0.065 -0.09 -0.11 -0.1

**** **** **** **** **** **** **** **** *** **** **** **** **** **** **** ****XBRL 0.162 0.143 0.255 0.238 -0.07 0.202 0.03 0.161 0.048 0.018 -0.03 0.048 0.027 0.079 -0.01 -0.01 0.048 0.053

**** **** **** **** **** **** ** **** *** *** **** *** ****TNVR 0.02 0.353 -0.03 -0.01 0.103 0.115 0.062 0.031 0.134 0.06 -0.06 0.19 0.422 0.284 0.015 0.004 0.291 0.256

**** **** **** **** ** **** **** **** **** **** **** **** ****RVOL 0.383 0.425 0.349 0.387 -0.2 0.627 0.024 0.13 -0.24 -0.11 0.027 -0.33 0.378 -0.258 0.078 -0.14 -0.23 -0.2

**** **** **** **** **** **** **** **** **** **** **** **** **** **** **** ****LEYP -0.08 -0.095 -0.04 -0.07 0.063 -0.143 0.058 0.188 -0.37 0.372 -0.25 0.712 -0.23 0.47 -0.17 0.247 0.462 0.411

**** **** ** **** **** **** **** **** **** **** **** **** **** **** **** **** **** ****ROA -0.05 0.008 -0.07 -0.07 0.03 -0.064 0.01 0.073 -0.17 0.4 0.018 0.265 -0.08 0.201 -0.06 0.111 0.226 0.222

**** **** **** **** **** **** **** **** **** **** **** **** **** ****BMR -0.03 -0.041 -0.04 -0.02 0.012 -0.031 -0.02 -0.11 0.022 -0.23 -0.24 -0.19 0.029 -0.069 0.155 0.013 -0.09 -0.07

*** ** ** **** **** **** **** **** **** **** ****LMV -0.13 -0.211 -0.1 -0.13 0.111 -0.241 0.067 0.326 -0.5 0.717 0.251 -0.18 -0.22 0.648 -0.16 0.498 0.417 0.337

**** **** **** **** **** **** **** **** **** **** **** **** **** **** **** **** **** ****ART 0.216 0.441 0.142 0.19 0.026 0.346 0 0.321 0.558 -0.25 -0.09 0.003 -0.26 -0.156 0.103 -0.13 -0.12 -0.11

**** **** **** **** **** **** **** **** **** **** **** **** **** **** ****LANLST -0.14 -0.181 -0.09 -0.12 0.076 -0.205 0.068 0.389 -0.33 0.453 0.16 -0.09 0.652 -0.16 -0.12 0.243 0.466 0.405

**** **** **** **** **** **** **** **** **** **** **** **** **** **** **** **** **** ****F_EER 0.041 0.083 -0 0.016 -0.01 0.086 -0.03 0.011 0.214 -0.3 -0.34 0.201 -0.27 0.175 -0.215 -0.05 -0.1 -0.09

** **** **** ** **** **** **** **** **** **** **** **** **** ****LNIO -0.09 -0.156 -0.08 -0.1 0.075 -0.137 -0.01 0.065 -0.26 0.255 0.065 0.057 0.424 -0.15 0.213 -0.08 0.057 0.035

**** **** **** **** **** **** **** **** **** **** **** **** **** **** **** **** *PIOS -0.07 -0.023 -0.07 -0.08 0.044 -0.083 0.041 0.408 -0.22 0.408 0.165 -0.06 0.403 -0.11 0.429 -0.14 0.047 0.924

**** **** **** *** **** *** **** **** **** **** **** **** **** **** **** *** ****PIOCS -0.07 -0.016 -0.08 -0.09 0.045 -0.082 0.053 0.356 -0.21 0.355 0.164 -0.02 0.32 -0.11 0.366 -0.13 0.041 0.902

**** **** **** *** **** **** **** **** **** **** **** **** **** **** *** ****

OLS Results

Model AQS API AVOL AES ADDPExpected Sign (+) (+) (+) (+) (-)

Intercept 54.181 6.523 0.411 42.611 0.435(5.77) (0.90) (7.24) (5.34) (0.01)**** **** ****

XBRL 7.684 2.801 0.158 5.018 -10.401(6.39) (3.03) (8.61) (4.92) (-2.14)**** *** **** **** **

LVOL -8.302 -2.141 -6.765 -4.659(-6.84) (-2.29) (-6.57) (-0.95)**** ** ****

TNVR 147.047 -38.522 17.284 137.109 1066.717(1.58) (-0.54) (19.12) (1.73) (2.84)

**** * ***RVOL 3138.528 2307.231 20.081 3238.899 -1497.896

(19.27) (18.40) (8.06) (23.44) (-2.28)**** **** **** **** **

LEYP -5.166 -1.405 0.096 -5.428 -14.825(-3.30) (-1.16) (6.49) (-4.08) (-2.34)**** **** **** **

LMV 7.949 3.060 -0.079 7.223 15.549(5.43) (2.72) (-7.34) (5.82) (2.63)**** *** **** **** ***

ROA -5.492 7.571 1.010 -5.124 53.278(-0.38) (0.68) (4.55) (-0.42) (0.91)

****BMR -0.834 0.282 -0.055 -0.574 2.352

(-0.74) (0.32) (-3.21) (-0.60) (0.52)***

ART 121.677 79.926 8.450 83.133 277.213(3.49) (2.97) (15.84) (2.81) (1.97)**** *** **** *** **

LANLST 0.879 -0.221 -0.090 0.602 0.173(1.07) (-0.35) (-7.27) (0.87) (0.05)

****F_EER -0.694 0.542 -0.007 -0.537 1.869

(-1.13) (1.15) (-0.76) (-1.03) (0.75)

LNIO -0.622 -0.714 -0.010 -0.541 2.131(-1.23) (-1.83) (-1.23) (-1.26) (1.04)

*PIOCS 4.947 1.995 -0.041 4.188 -15.839

(1.26) (0.66) (-0.71) (1.25) (-1.00)

F 0.000 0.000 0.000 0.000 0.000Adj. R2 0.1444 0.1090 0.3217 0.1745 0.0158

R2 0.1470 0.1117 0.3237 0.1771 0.0189

All 10-K and 10-Q, First XBRL Filing Matched with Non-XBRL of One Year Ago

OLS Results

10-K only, First XBRL Filing Matched with Non-XBRL of One Year Ago

Model AQS API AVOL AES ADDPExpected Sign (+) (+) (+) (+) (-)

Intercept -21.950 17.136 0.557 -22.647 -192.802(-3.64) (3.39) (5.31) (-4.63) (-1.59)**** **** **** ****

XBRL 0.540 1.127 0.111 0.882 7.394(0.94) (2.33) (4.74) (1.88) (0.64)

** **** *LVOL 1.401 -1.501 1.983 5.424

(1.93) (-2.47) (3.37) (0.37)* ** ****

TNVR -94.726 55.340 17.135 -130.030 2056.820(-1.93) (1.35) (14.05) (-3.27) (2.08)

* **** *** **RVOL 424.666 433.181 -5.620 764.702 -5759.090

(2.90) (3.53) (-0.95) (6.44) (-1.95)*** **** **** *

ROA 4.114 11.757 0.182 3.722 281.969(0.50) (1.71) (0.54) (0.56) (1.71)

* *BMR -0.143 -0.391 -0.003 0.720 -10.512

(-0.23) (-0.74) (-0.10) (1.41) (-0.83)

ART 18.114 26.135 7.495 9.275 -1649.747(0.79) (1.36) (8.00) (0.50) (-3.57)

**** ****LMV -0.243 0.723 -0.046 -1.919 57.652

(-0.29) (1.04) (-3.22) (-2.84) (3.44)*** *** ****

LEYP 0.729 -1.689 0.075 2.421 -87.757(0.78) (-2.16) (3.83) (3.20) (-4.68)

** **** *** ****LANLST 0.780 0.401 -0.141 0.703 -11.302

(1.75) (1.07) (-7.85) (1.94) (-1.26)* **** *

F_EER 0.055 0.409 -0.005 -0.268 0.932(0.18) (1.57) (-0.38) (-1.06) (0.15)

LNIO -0.167 0.285 -0.009 0.274 3.695(-0.79) (1.60) (-1.02) (1.59) (0.86)

PIOCS -1.672 -1.203 -0.209 -1.840 112.565(-0.80) (-0.69) (-2.62) (-1.09) (2.68)

*** ***F 0.000 0.000 0.000 0.000 0.000

Adj. R2 0.0155 0.0183 0.2294 0.0271 0.0849R2 0.0215 0.0243 0.2337 0.0331 0.0904

OLS Results

10-Q only, First XBRL Filing Matched with Non-XBRL of One Year Ago

Model AQS API AVOL AES ADDPExpected Sign (+) (+) (+) (+) (-)

Intercept 57.754 10.138 0.409 51.316 -2.456(6.19) (1.41) (7.23) (6.49) (-0.06)**** **** ****

XBRL 7.413 2.809 0.158 5.169 -9.912(6.28) (3.08) (8.59) (5.16) (-2.06)**** *** **** **** **

LVOL -8.599 -2.572 -7.705 -4.128(-7.15) (-2.77) (-7.55) (-0.84)**** *** ****

TNVR 173.590 -16.140 17.110 195.102 1012.082(1.88) (-0.23) (18.87) (2.49) (2.69)

* **** ** ***RVOL 3147.365 2308.315 21.266 3178.987 -1568.552

(19.44) (18.44) (8.45) (23.15) (-2.38)**** **** **** **** **

LEYP -5.137 -1.619 0.096 -6.122 -12.906(-3.32) (-1.35) (6.49) (-4.66) (-2.05)**** **** **** **

ART 112.942 78.446 8.275 77.382 289.272(3.29) (2.95) (15.51) (2.65) (2.07)

*** *** **** *** **LMV 8.037 3.326 -0.081 7.861 14.492

(5.57) (2.98) (-7.53) (6.42) (2.46)**** *** **** **** **

ROA -4.706 7.203 1.020 -3.721 48.156(-0.32) (0.64) (4.51) (-0.30) (0.81)

****BMR -0.709 0.261 -0.055 -0.547 2.715

(-0.64) -0.3 (-3.17) (-0.58) (0.60)***

LANLST 0.677 -0.061 -0.084 0.684 -0.115(0.84) (-0.10) (-6.75) (1.00) (-0.04)

****F_EER -0.557 0.525 -0.007 -0.521 1.588

(-0.91) (1.11) (-0.75) (-1.00) (0.63)

LNIO -0.515 -0.653 -0.007 -0.440 1.969(-1.04) (-1.70) (-0.94) (-1.04) (0.97)

*PIOCS 5.101 2.109 -0.047 4.982 -18.413

(1.32) (0.70) (-0.82) (1.51) (-1.17)

F 0.000 0.000 0.000 0.000 0.000Adj. R2 0.1487 0.1111 0.3186 0.1774 0.0151

R2 0.1513 0.1138 0.3206 0.1800 0.0182

OLS Results

All 10-K and 10-Q, all Filings between June 15, 2008 and Jun 14, 2012

Model AQS API AVOL AES ADDPExpected Sign (+) (+) (+) (+) (-)

Intercept 15.285 -6.440 0.323 14.072 30.314(3.93) (-1.99) (15.61) (4.23) (2.30)**** ** **** **** **

XBRL 3.972 2.851 0.189 3.217 -16.675(5.94) (5.12) (22.51) (5.62) (-7.38)**** **** **** **** ****

LVOL -3.971 -0.339 -3.647 -2.595(-7.88) (-0.81) (-8.46) (-1.52)**** ****

TNVR 151.199 -23.699 19.356 107.557 608.106(3.69) (-0.69) (58.13) (3.07) (4.39)**** **** *** ****

RVOL 1875.764 1673.969 10.288 1766.937 -1124.790(31.33) (33.55) (13.66) (34.47) (-5.56)

**** **** **** **** ****ART -36.888 12.766 6.428 40.600 52.243

(-2.52) (1.05) (34.95) (3.24) (1.05)** **** ***

LMV 5.071 1.112 -0.054 4.849 -1.287(7.98) (2.10) (-12.90 (8.92) (-0.60)**** ** **** ****

LEYP -1.988 0.358 0.068 -1.962 -3.313(-2.94) (0.64) (12.27) (-3.39) (-1.45)

*** **** ****ROA -1.721 -5.967 0.670 3.324 20.170

(-0.33) (-1.37) (10.15) (0.74) (1.14)****

BMR -2.012 -1.467 -0.041 -1.700 0.002(-4.55) (-3.98) (-7.37) (-4.49) (0.00)**** **** **** ****

LANLST 0.363 -0.403 -0.076 -0.278 6.663(1.07) (-1.43) (-17.83 (-0.96) (5.80)

**** ****F_EER -0.323 0.170 0.001 -0.105 2.166

(-1.16) (0.73) (0.21) (-0.44) (2.29)**

LNIO -0.285 -0.119 -0.001 -0.454 -1.190(-1.17) (-0.59) (-0.26) (-2.18) (-1.45)

**PIOCS 1.714 0.948 -0.178 3.494 6.019

(1.01) (0.67) (-8.65) (2.41) (1.05)**** **

F 0.000 0.000 0.000 0.000 0.000Adj. R2 0.0338 0.0388 0.2241 0.0437 0.0058

R2 0.0341 0.0392 0.2244 0.0441 0.0062

Conclusion

• Reaffirms that the XBRL mandate facilitates the dissemination of information in public disclosure as well as improves the fusion of the public information with private information.

• builds the link between the documented higher informational efficiency and market efficiency via price formation.

• the XBRL mandate, in an imperfect market where the role of private information is inevitable, there is a cost to attaining higher market efficiency.