Early evidence on iXBRL regulation and its impact on information asymmetry in the US capital market

Abstract

The topic of extensible business reporting language (XBRL) has long been under debate regarding its effect and usefulness as a disclosure format. With the recent regulatory shift to the newest evolution of XBRL, inline XBRL (iXBRL), it once again becomes important to evaluate and understand the effects of the regulation. We use difference in difference regressions in combination with propensity score matching to provide evidence on how the implementation of the newer format of iXBRL affects the information asymmetry in the capital markets by using volatility, illiquidity, and bid-ask spread as proxies for information asymmetry. Using a sample consisting of 1916 US companies spread over three fiscal years (2017-2019), we show that the implementation of iXBRL regulation has led to an overall decrease in information asymmetry. We also find that managers' choice of tags when preparing an iXBRL report has limited effect on information asymmetry. With a higher rate of extended tags leading to both increased and decreased levels of information asymmetry depending on the proxy, with volatility leading to an increase and bid-ask leading to a decrease in information asymmetry. However, the findings show that the effects are much stronger in the period immediately following the release of an annual report and have little to no impact in the long term. Additional tests also show that a higher number of tags in total leads to higher level of information asymmetry. Our findings provide important insights into the effect of iXBRL regulation and the impact of the discretionary room that is allowed in iXBRL reporting. The findings can provide important insights for regulators, preparers, and researchers as a reference point when discussing future research and regulations.