Proceedings

and lower users’ information costs. For instance, XBRL may improve the ability to
provide more timely data in comparison to voluntary disclosures in periodic reports
(Wallman 1997). The provided disaggregated data can be historical costs, fair values,
and forecasts (e.g., monthly or quarterly sales), as well as values in different
currencies. Third, voluntary disclosures in traditional disclosure formats have
important limitations in accessibility. XBRL disclosure is accessible to all users of
financial statements and is flexible in format (Debreceny 2002). Thus, XBRL
improves the orientation towards users` information needs. Due to the better
accessibility, tagged information can be easily acquired and automatically extracted
from various parts of the financial statements and the footnotes without searching the
annual report manually. Hodge et al. (2004) investigate in their study the potential of
XBRL to improve non-professional investors’ use of financial information in
investment decisions. The authors state that in the context of recognition versus
disclosure of stock option compensation, participants of the study who use XBRL are
more likely to acquire and to integrate the footnote information. In another study,
Arnold et al. (2010) examine the impact of tagging qualitative information on
investors’ decision making. They determine that the presentation of MD&A in a
tagged form information leads to more efficient incorporation of risk information into
decision making of professional and non-professional investors. The empirical results
of both studies suggest that XBRL improves the transparency of financial reporting,
since transparency is associated with the idea that annual reports should be presented
in a manner that is easily understood by financial statement users (Hodge et al. 2004).
Finally, XBRL disclosure is also likely to enhance the comparability of financial
statements across firms. The more firms and countries adopt XBRL, the more
valuable XBRL will become because comparability increases with the size of the
network (Meeks and Swann 2009). Currently, many countries all over the world
require or permit IFRS reporting. A special XBRL taxonomy for IAS/IFRS was
developed, which even allows cross-country comparison between companies in all
nations using this standard.
Higher comparability and improved transparency in financial reporting are linked to
important economic consequences, e.g. market liquidity and the firms’ cost of capital
(Hodge et al. 2004; Christensen 2007). Generally with increasing voluntary disclosure
in XBRL format, investors’ costs of gathering and processing information may
decrease, mitigating information asymmetries on the security markets. Therefore,
adverse selection and insider trading problems can be attenuated, increasing investors’
willingness to participate on the security markets and thus, boosting market liquidity
(Ball 2006). Furthermore, disclosure in XBRL may bring forward the international
integration of capital markets, since it allows companies to approach potential
investors worldwide. If investors are provided with more useful and timely
information for their decision making, information asymmetries and adverse selection
problems further decrease, and thus, market liquidity is expected to increase even
more. If the application of XBRL can increase the liquidity of a company’s shares by
reducing information asymmetries, investors’ liquidity premia might decrease (Hail et
al. 2010a, 2010b).
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