THE IMPACT OF THE XBRL
MANDATE ON MARKET EFFICIENCY
Yu Cong
Morgan State University
Jia Hao
Wayne State University
Lin Zou
Texas 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 informationprocess costs and more timely information
processes.
• As measured by abnormal trading volume
Model
•
•
•
•
•
AQS = α1+ α2*XBRL +∑ αi*CONTROLS+ε;
API = α1+ α2*XBRL +∑ αi*CONTROLS+ε;
AVOL = α1+ α2*XBRL +∑ αi*CONTROLS+ε;
AES = α1+ α2*XBRL +∑ αi*CONTROLS+ε;
ADDP = α1+ α2*XBRL +∑ αi*CONTROLS+ε;
Eq1
Eq2
Eq3
Eq4
Eq5
Dependent Variables
Independent Variables
Sample
VARIABLE
AQS
API
AVOL
AES
ADDP
ARVOL
XBRL
TNVR
RVOL
LEYP
ROA
BMR
LMV
ART
LANLST
F_EER
LNIO
PIOS
PIOCS
mean
-0.974
0.241
0.230
-0.126
21.642
1.504
0.000
0.013
0.002
2.727
0.003
0.667
6.788
0.024
3.210
0.497
1.300
0.666
0.465
Pre XBRL
stddev median
39.305
-0.888
30.373
-0.361
0.680
0.185
33.702
-0.538
133.341 10.997
31.139
0.146
0.000
0.000
0.012
0.009
0.003
0.001
0.972
2.812
0.046
0.009
0.572
0.565
1.633
6.691
0.020
0.018
1.042
3.332
0.980
0.195
1.385
0.732
0.266
0.717
0.188
0.489
mean
10.380
6.138
0.425
8.844
10.183
17.796
1.000
0.014
0.003
2.821
0.004
0.638
6.941
0.025
3.372
0.475
1.282
0.691
0.484
Post XBRL
stddev median
43.090
0.450
31.503
1.007
0.723
0.394
37.944
0.544
173.900
2.142
51.934
1.657
0.000
1.000
0.012
0.010
0.005
0.001
0.950
2.972
0.042
0.009
0.530
0.550
1.544
6.933
0.022
0.018
0.983
3.434
0.989
0.168
1.387
0.693
0.246
0.744
0.178
0.512
Variable
API
API
ALVOL
0.195
****
0.531
****
0.558
****
-0.2
****
0.518
****
0.162
****
0.02
AQS
AES
ADDP
ARVOL
XBRL
TNVR
RVOL
LEYP
ROA
BMR
LMV
0.383
****
-0.08
****
-0.05
****
-0.03
-0.13
****
ART
0.216
****
LANLST -0.14
****
F_EER 0.041
**
LNIO
-0.09
****
PIOS
-0.07
****
PIOCS -0.07
****
ALVOL AQS
0.084 0.453
**** ****
0.046
***
0.115
****
0.182 0.734
**** ****
0.08 -0.25
**** ****
0.49 0.505
**** ****
0.143 0.255
**** ****
0.353 -0.03
****
0.425 0.349
**** ****
-0.095 -0.04
****
**
0.008 -0.07
****
-0.041 -0.04
***
**
-0.211 -0.1
**** ****
0.441 0.142
**** ****
-0.181 -0.09
**** ****
0.083
-0
****
-0.156 -0.08
**** ****
-0.023 -0.07
****
-0.016 -0.08
****
AES
0.462
****
0.085
****
0.756
****
ADDP
-0.04
***
0.069
****
-0.03
ARVOL
0.389
****
0.304
****
0.418
****
-0.04 0.44
**
****
-0.25
-0.05
****
***
0.546 -0.22
**** ****
0.238 -0.07 0.202
**** **** ****
-0.01 0.103 0.115
**** ****
0.387 -0.2 0.627
**** **** ****
-0.07 0.063 -0.143
**** **** ****
-0.07 0.03 -0.064
****
****
-0.02 0.012 -0.031
**
-0.13 0.111 -0.241
**** **** ****
0.19 0.026 0.346
****
****
-0.12 0.076 -0.205
**** **** ****
0.016 -0.01 0.086
****
-0.1 0.075 -0.137
**** **** ****
-0.08 0.044 -0.083
**** ***
****
-0.09 0.045 -0.082
**** ***
****
XBRL
0.095
****
0.136
****
0.141
****
0.128
****
-0.04
**
0.187
****
0.062
****
0.024
0.058
****
0.01
-0.02
0.067
****
0
0.068
****
-0.03
**
-0.01
0.041
***
0.053
****
TNVR RVOL LEYP
-0.03 0.322 -0.06
**** ****
0.364 0.297 -0.07
**** **** ****
-0.07 0.344 -0.05
**** **** ****
-0.06 0.396 -0.08
**** **** ****
0.082 -0.05 0.018
**** ***
0.029 0.818 -0.12
**** ****
0.03 0.161 0.048
**
**** ***
0.031 0.134
**
****
0.13
-0.24
****
****
0.188 -0.37
**** ****
0.073 -0.17 0.4
**** **** ****
-0.11 0.022 -0.23
****
****
0.326 -0.5 0.717
**** **** ****
0.321 0.558 -0.25
**** **** ****
0.389 -0.33 0.453
**** **** ****
0.011 0.214 -0.3
**** ****
0.065 -0.26 0.255
**** **** ****
0.408 -0.22 0.408
**** **** ****
0.356 -0.21 0.355
**** **** ****
ROA BMR LMV
-0.02 0.009 -0.09
****
0.02 -0.04 -0.19
*** ****
-0.03 -0.01 -0.12
**
****
-0.04
-0
-0.13
***
****
0.022 0.005 0.08
****
-0.05 -0.02 -0.2
***
****
0.018 -0.03 0.048
***
0.06 -0.06 0.19
**** **** ****
-0.11 0.027 -0.33
****
****
0.372 -0.25 0.712
**** **** ****
0.018 0.265
****
-0.24
-0.19
****
****
0.251 -0.18
**** ****
-0.09 0.003 -0.26
****
****
0.16 -0.09 0.652
**** **** ****
-0.34 0.201 -0.27
**** **** ****
0.065 0.057 0.424
**** **** ****
0.165 -0.06 0.403
**** **** ****
0.164 -0.02 0.32
****
****
ART
0.135
****
0.454
****
0.125
****
0.142
****
0.038
**
0.287
****
0.027
0.422
****
0.378
****
-0.23
****
-0.08
****
0.029
-0.22
****
LANLST
-0.087
****
-0.151
****
-0.103
****
-0.113
****
0.055
****
-0.159
****
0.079
****
0.284
****
-0.258
****
0.47
****
0.201
****
-0.069
****
0.648
****
-0.156
****
-0.16
****
0.175 -0.215
**** ****
-0.15 0.213
**** ****
-0.11 0.429
**** ****
-0.11 0.366
**** ****
F_EER
0.038
**
0.041
***
0.003
0.01
0.009
0.065
****
-0.01
LNIO
-0.06
****
-0.15
****
-0.07
****
-0.07
****
0.059
****
-0.09
****
-0.01
0.015 0.004
0.078
****
-0.17
****
-0.06
****
0.155
****
-0.16
****
0.103
****
-0.12
****
-0.14
****
0.247
****
0.111
****
0.013
0.498
****
-0.13
****
0.243
****
-0.05
****
PIOS
-0.07
****
-0.03
**
-0.09
****
-0.11
****
0.011
PIOCS
-0.06
****
-0.02
-0.11
****
0.048
***
0.291
****
-0.23
****
0.462
****
0.226
****
-0.09
****
0.417
****
-0.12
****
0.466
****
-0.1
****
0.057
****
-0.1
****
0.053
****
0.256
****
-0.2
****
0.411
****
0.222
****
-0.07
****
0.337
****
-0.11
****
0.405
****
-0.09
****
0.035
*
0.924
****
-0.08
****
-0.14 0.047
**** ***
-0.13 0.041 0.902
**** *** ****
-0.08
****
-0.09
****
0.007
Model
Expected Sign
Intercept
XBRL
OLS Results
LVOL
TNVR
RVOL
All 10-K and 10-Q,
First XBRL Filing
Matched with NonXBRL of One Year
Ago
AQS
(+)
54.181
(5.77)
****
7.684
(6.39)
****
-8.302
(-6.84)
****
147.047
(1.58)
API
(+)
6.523
(0.90)
2.801
(3.03)
***
-2.141
(-2.29)
**
-38.522
(-0.54)
AVOL
(+)
0.411
(7.24)
****
0.158
(8.61)
****
17.284
(19.12)
****
20.081
(8.06)
****
0.096
(6.49)
****
-0.079
(-7.34)
****
1.010
(4.55)
****
-0.055
(-3.21)
***
8.450
(15.84)
****
-0.090
(-7.27)
****
-0.007
(-0.76)
AES
(+)
42.611
(5.34)
****
5.018
(4.92)
****
-6.765
(-6.57)
****
137.109
(1.73)
*
3238.899
(23.44)
****
-5.428
(-4.08)
****
7.223
(5.82)
****
-5.124
(-0.42)
ADDP
(-)
0.435
(0.01)
1066.717
(2.84)
***
-1497.896
(-2.28)
**
-14.825
(-2.34)
**
15.549
(2.63)
***
53.278
(0.91)
-0.574
(-0.60)
2.352
(0.52)
83.133
(2.81)
***
0.602
(0.87)
277.213
(1.97)
**
0.173
(0.05)
-0.537
(-1.03)
1.869
(0.75)
-10.401
(-2.14)
**
-4.659
(-0.95)
3138.528
(19.27)
****
-5.166
(-3.30)
****
7.949
(5.43)
****
-5.492
(-0.38)
2307.231
(18.40)
****
-1.405
(-1.16)
BMR
-0.834
(-0.74)
0.282
(0.32)
ART
121.677
(3.49)
****
0.879
(1.07)
79.926
(2.97)
***
-0.221
(-0.35)
F_EER
-0.694
(-1.13)
0.542
(1.15)
LNIO
-0.622
(-1.23)
-0.010
(-1.23)
-0.541
(-1.26)
2.131
(1.04)
PIOCS
4.947
(1.26)
-0.714
(-1.83)
*
1.995
(0.66)
-0.041
(-0.71)
4.188
(1.25)
-15.839
(-1.00)
F
Adj. R2
R2
0.000
0.1444
0.1470
0.000
0.1090
0.1117
0.000
0.3217
0.3237
0.000
0.1745
0.1771
0.000
0.0158
0.0189
LEYP
LMV
ROA
LANLST
3.060
(2.72)
***
7.571
(0.68)
Model
Expected Sign
Intercept
XBRL
OLS Results
LVOL
TNVR
RVOL
10-K only, First
XBRL Filing
Matched with
Non-XBRL of One
Year Ago
AQS
(+)
-21.950
(-3.64)
****
0.540
(0.94)
1.401
(1.93)
*
-94.726
(-1.93)
*
424.666
(2.90)
***
4.114
(0.50)
API
(+)
17.136
(3.39)
****
1.127
(2.33)
**
-1.501
(-2.47)
**
55.340
(1.35)
0.182
(0.54)
AES
(+)
-22.647
(-4.63)
****
0.882
(1.88)
*
1.983
(3.37)
****
-130.030
(-3.27)
***
764.702
(6.44)
****
3.722
(0.56)
-0.003
(-0.10)
0.720
(1.41)
9.275
(0.50)
0.409
(1.57)
7.495
(8.00)
****
-0.046
(-3.22)
***
0.075
(3.83)
****
-0.141
(-7.85)
****
-0.005
(-0.38)
-1.919
(-2.84)
***
2.421
(3.20)
***
0.703
(1.94)
*
-0.268
(-1.06)
BMR
-0.143
(-0.23)
433.181
(3.53)
****
11.757
(1.71)
*
-0.391
(-0.74)
ART
18.114
(0.79)
26.135
(1.36)
LMV
-0.243
(-0.29)
0.723
(1.04)
LEYP
0.729
(0.78)
LANLST
0.780
(1.75)
*
0.055
(0.18)
-1.689
(-2.16)
**
0.401
(1.07)
ROA
F_EER
AVOL
(+)
0.557
(5.31)
****
0.111
(4.74)
****
17.135
(14.05)
****
-5.620
(-0.95)
ADDP
(-)
-192.802
(-1.59)
7.394
(0.64)
5.424
(0.37)
2056.820
(2.08)
**
-5759.090
(-1.95)
*
281.969
(1.71)
*
-10.512
(-0.83)
-1649.747
(-3.57)
****
57.652
(3.44)
****
-87.757
(-4.68)
****
-11.302
(-1.26)
0.932
(0.15)
LNIO
-0.167
(-0.79)
0.285
(1.60)
-0.009
(-1.02)
0.274
(1.59)
3.695
(0.86)
PIOCS
-1.672
(-0.80)
-1.203
(-0.69)
-1.840
(-1.09)
F
Adj. R2
R2
0.000
0.0155
0.0215
0.000
0.0183
0.0243
-0.209
(-2.62)
***
0.000
0.2294
0.2337
112.565
(2.68)
***
0.000
0.0849
0.0904
0.000
0.0271
0.0331
Model
Expected Sign
Intercept
XBRL
OLS Results
LVOL
TNVR
RVOL
10-Q only, First
XBRL Filing
Matched with
Non-XBRL of One
Year Ago
LEYP
ART
LMV
ROA
AQS
(+)
57.754
(6.19)
****
7.413
(6.28)
****
-8.599
(-7.15)
****
173.590
(1.88)
*
3147.365
(19.44)
****
-5.137
(-3.32)
****
112.942
(3.29)
***
8.037
(5.57)
****
-4.706
(-0.32)
API
(+)
10.138
(1.41)
2.809
(3.08)
***
-2.572
(-2.77)
***
-16.140
(-0.23)
2308.315
(18.44)
****
-1.619
(-1.35)
78.446
(2.95)
***
3.326
(2.98)
***
7.203
(0.64)
AVOL
(+)
0.409
(7.23)
****
0.158
(8.59)
****
17.110
(18.87)
****
21.266
(8.45)
****
0.096
(6.49)
****
8.275
(15.51)
****
-0.081
(-7.53)
****
1.020
(4.51)
****
-0.055
(-3.17)
***
-0.084
(-6.75)
****
-0.007
(-0.75)
AES
(+)
51.316
(6.49)
****
5.169
(5.16)
****
-7.705
(-7.55)
****
195.102
(2.49)
**
3178.987
(23.15)
****
-6.122
(-4.66)
****
77.382
(2.65)
***
7.861
(6.42)
****
-3.721
(-0.30)
ADDP
(-)
-2.456
(-0.06)
1012.082
(2.69)
***
-1568.552
(-2.38)
**
-12.906
(-2.05)
**
289.272
(2.07)
**
14.492
(2.46)
**
48.156
(0.81)
-0.547
(-0.58)
2.715
(0.60)
0.684
(1.00)
-0.115
(-0.04)
-0.521
(-1.00)
1.588
(0.63)
-9.912
(-2.06)
**
-4.128
(-0.84)
BMR
-0.709
(-0.64)
0.261
-0.3
LANLST
0.677
(0.84)
-0.061
(-0.10)
F_EER
-0.557
(-0.91)
0.525
(1.11)
LNIO
-0.515
(-1.04)
-0.007
(-0.94)
-0.440
(-1.04)
1.969
(0.97)
PIOCS
5.101
(1.32)
-0.653
(-1.70)
*
2.109
(0.70)
-0.047
(-0.82)
4.982
(1.51)
-18.413
(-1.17)
F
Adj. R2
0.000
0.1487
0.000
0.1111
0.000
0.3186
0.000
0.1774
0.000
0.0151
Model
Expected Sign
Intercept
OLS Results
XBRL
LVOL
TNVR
API
(+)
-6.440
(-1.99)
**
2.851
(5.12)
****
-0.339
(-0.81)
AVOL
(+)
0.323
(15.61)
****
0.189
(22.51)
****
-23.699
(-0.69)
-2.012
(-4.55)
****
0.363
(1.07)
-1.467
(-3.98)
****
-0.403
(-1.43)
F_EER
-0.323
(-1.16)
0.170
(0.73)
19.356
(58.13)
****
10.288
(13.66)
****
6.428
(34.95)
****
-0.054
(-12.90
****
0.068
(12.27)
****
0.670
(10.15)
****
-0.041
(-7.37)
****
-0.076
(-17.83
****
0.001
(0.21)
LNIO
-0.285
(-1.17)
-0.119
(-0.59)
-0.001
(-0.26)
PIOCS
1.714
(1.01)
0.948
(0.67)
F
Adj. R2
R2
0.000
0.0338
0.0341
0.000
0.0388
0.0392
-0.178
(-8.65)
****
0.000
0.2241
0.2244
RVOL
All 10-K and 10-Q,
all Filings between
June 15, 2008 and
Jun 14, 2012
AQS
(+)
15.285
(3.93)
****
3.972
(5.94)
****
-3.971
(-7.88)
****
151.199
(3.69)
****
1875.764
(31.33)
****
-36.888
(-2.52)
**
5.071
(7.98)
****
-1.988
(-2.94)
***
-1.721
(-0.33)
ART
LMV
LEYP
ROA
BMR
LANLST
1673.969
(33.55)
****
12.766
(1.05)
1.112
(2.10)
**
0.358
(0.64)
-5.967
(-1.37)
AES
(+)
14.072
(4.23)
****
3.217
(5.62)
****
-3.647
(-8.46)
****
107.557
(3.07)
***
1766.937
(34.47)
****
40.600
(3.24)
***
4.849
(8.92)
****
-1.962
(-3.39)
****
3.324
(0.74)
-1.700
(-4.49)
****
-0.278
(-0.96)
-0.105
(-0.44)
-0.454
(-2.18)
**
3.494
(2.41)
**
0.000
0.0437
0.0441
ADDP
(-)
30.314
(2.30)
**
-16.675
(-7.38)
****
-2.595
(-1.52)
608.106
(4.39)
****
-1124.790
(-5.56)
****
52.243
(1.05)
-1.287
(-0.60)
-3.313
(-1.45)
20.170
(1.14)
0.002
(0.00)
6.663
(5.80)
****
2.166
(2.29)
**
-1.190
(-1.45)
6.019
(1.05)
0.000
0.0058
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.