XBRL adoption and expected crash risk

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal

1 Scopus Citations
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Detail(s)

Original languageEnglish
Pages (from-to)31-52
Journal / PublicationJournal of Accounting and Public Policy
Volume38
Issue number1
Online published14 Feb 2019
Publication statusPublished - Feb 2019

Abstract

The U.S. Securities and Exchange Commission (SEC) mandated the adoption of eXtensible Business Reporting Language (XBRL) in 2009, with the aim of facilitating data exchange and reducing information processing costs. To shed light on the economic consequences of this important disclosure regulation, this study investigates whether and how XBRL mandate impacts investor expectations of future crash risk. Using the steepness of the option implied volatility smirk as a proxy for ex ante expectation of crash risk, we find that expected crash risk decreases after adoption of XBRL. Moreover, we document that the effect is more pronounced for firms with higher financial opacity, more volatile earnings, and greater analyst forecast dispersion. Further, our analysis generates evidence that the use of customized extension XBRL elements attenuates the effect of XBRL reporting on reducing expected crash risk. Our empirical results are robust to a variety of sensitivity checks. Overall, the findings indicate that XBRL reduces information processing costs and strengthens information transparency of capital markets, which in turn, reduces investor expectations of future crash risk.

Research Area(s)

  • Bad news hoarding, Expected crash risk, Information processing costs, XBRL