J. Account.

Public Policy 33 (2014) 6982

Contents lists available at ScienceDirect

J. Account. Public Policy

journal homepage: www.elsevier.com/locate/jaccpubpol

XBRLs impact on analyst forecast behavior:

An empirical study
Chunhui Liu a, Tawei Wang b,, Lee J. Yao c
a
b
c

University of Winnipeg, 515 Portage Avenue, Winnipeg, MB R3B2E9, Canada

University of Hawaii at Manoa, 2404 Maile Way, Honolulu, HI 96822, USA
Loyola University New Orleans, 6363 St. Charles Ave., Campus Box 015, New Orleans, LA 70118, USA

a b s t r a c t
This paper investigates the benets of mandatory adoption of the
eXtensible Business Reporting Language (XBRL) in the U.S. Using a
sample of Phase I and Phase II lers in year 2009 and 2010, we
examine whether there exists a positive association between the
number of analysts following a rm as well as analyst forecast accuracy and the XBRL mandate by the Securities and Exchange Commission (SEC). Our empirical results demonstrate a signicant
positive association between mandatory XBRL adoption and both
analyst following and forecast accuracy. In addition, our ndings
show that such an association is stronger for Phase I lers than
for Phase II lers in 2010. The magnitude of the association between
XBRL mandate and analyst following is also larger for Phase I lers
in year two than in year one of adoption. Our ndings not only support the SECs requirement of detailed tagging of footnotes but also
show that the benets of adopting XBRL are realized regardless of
errors found and concerns raised at the early stage of adoption.
2013 Elsevier Inc. All rights reserved.

1. Introduction
The use of the eXtensible Business Reporting Language (XBRL) in nancial reporting has been expected to be one of the most important changes in the disclosure environment (Debreceny et al.,
2010). It is also expected to bring signicant benets to the capital market (Hodge et al., 2004). For
example, the Securities and Exchange Commissions (SEC) nal rule Interactive Data to Improve Financial Reporting states the potential benets of adopting XBRL:. . .text-based information can be
dynamically searched and analyzed, facilitating the comparison of nancial and business performance
Corresponding author. Tel.: +1 808 956 7713; fax: +1 808 956 9888.
E-mail addresses: m.liu@uwinnipeg.ca (C. Liu), twwang@hawaii.edu (T. Wang), yao@loyno.edu (L.J. Yao).
0278-4254/$ - see front matter 2013 Elsevier Inc. All rights reserved.
http://dx.doi.org/10.1016/j.jaccpubpol.2013.10.004

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C. Liu et al. / J. Account. Public Policy 33 (2014) 6982

across rms, reporting periods, and industries. . .with the potential to increase the speed, accuracy, and
usability of nancial disclosure (p. 8).1 In the same vein, Premuroso and Bhattacharya (2008) suggest
that XBRL can potentially reduce disparities between rms with regards to disclosure levels and contents. Piechocki et al. (2009) indicate that XBRL provides the possibility to build information systems that
enhance the comparison of nancial reports of different rms within one or more sets of generally accepted accounting principles (GAAP).
Nevertheless, uncertainties associated with XBRL implementation (Boritz and No, 2005; Doolin and
Troshani, 2007) have raised questions about the actual impact of XBRL (Janvrin and No, 2012). For instance, the Committee on Improvements to Financial Reporting commissioned by the SEC notes that
users may not respond optimally to the provision of information via XBRL-tagged nancial statements
(Moehrle et al., 2011). Debreceny et al. (2005) discuss the potential loss of comparability because of
the exibility for tagging extensions. Boritz and No (2008) and Debreceny et al. (2010) both uncover
errors in XBRL instance documents and lings.
Given the above discussion, the impact of the adoption of XBRL on the nancial information environment is not ex ante obvious. On one hand, XBRL can potentially facilitate information exchange and
comparison. It also reduces information asymmetry by improving the transparency and re-usability of
nancial reporting information. On the other hand, extensive uses of taxonomy extensions and implementation problems observed in the transition period have led to uncertainties of benet realization
from XBRL usage.
In this paper, we provide insights into this issue by investigating the potential benets to the information environment of the mandatory adoption of XBRL in the U.S. In particular, we investigate the
association between the XBRL mandate and the number of analyst followings as well as analyst forecast accuracy which provides a critical measure of the effectiveness of the SECs mandate. Furthermore, since the SEC adopted a three-year phase-in approach, we also examine whether the
association changes at different adoption phases (research background is detailed in Section 2).
We focus on nancial analysts for the following reasons. Financial analysts are among the most
important and sophisticated users of nancial reports (Mikhail et al., 1999; Bae et al., 2008; Yu,
2010). Given their roles as information intermediaries and their superior information processing capabilities, analysts are often proxies for the informativeness of a rms information environment (e.g.,
Core, 2001; Francis et al., 2002; Roulstone, 2003). Accordingly, examining the association between
the mandatory adoption of XBRL and analyst forecast behavior uncovers the impact of the XBRL mandate on the richness of the information environment (number of analyst followings) as well as the
quality of the nancial information environment (analyst forecast accuracy) (e.g., Roulstone, 2003;
Herrmann et al., 2007; Yu, 2010).
To address our research question, we collect the rst two years (i.e., 2009 and 2010, labeled Phase I
and Phase II hereafter) of XBRL ling information of the three-year phase-in stages from EDGAR Really
Simple Syndication (RSS). We match this list of lers to the I/B/E/S database for the number of analyst
followings and forecast accuracy data in the period between 2005 and 2010. The above two steps result in a sample of both XBRL-adopted and non-XBRL-adopted rms before the mandate and the rst
two years after the mandatory adoption. We then build a matched sample for our analyses. We nd
that the mandatory adoption of XBRL is positively associated with the number of analyst followings
and analyst forecast accuracy. We also nd that such association is stronger in year two compared
to year one for Phase I lers and stronger for Phase I lers than for Phase II lers in year two. Our ndings suggest benets regarding the mandatory adoption of XBRL in terms of analyst forecast behavior
and the potential benets with additional tagged nancial reporting elements and/or familiarization
with the tool.
This paper differs from prior literature, such as Yoon et al. (2011) and Kim et al. (2012), in several
important ways. First, our main focus is on one type of sophisticated users of nancial reports, analysts, as analysts are among the most important and inuential users of nancial information. In addition to stock market proxies used in prior studies, the role played by analysts in the capital market
sheds light on the benets of XBRL. Second, unlike previous studies addressing only the rst year of

See http://www.sec.gov/rules/nal/2009/33-9002.pdf for details.

C. Liu et al. / J. Account. Public Policy 33 (2014) 6982

71

the mandate based on market capitalization, this research investigates the rst two years of the mandate. Such a research design better leverages the natural experiment provided by the SEC XBRL mandate. We can compare the information environment change at the Phase I and Phase II stages. In
addition, studying both Phase I and Phase II mandatory lers makes our results less likely to be affected by other factors such as the macroeconomic environment. The design also allows us to show
the potential impact of different extents of tagging (nancial statements only vs. nancial statements
with footnotes) in the XBRL mandate (Alles and Debreceny, 2012) and/or the possible effect of learning
to use the tool.
The remainder of this paper is organized as follows. In Section 2, we present the research background and develop the hypotheses. Our research methodology is given in Section 3. In Section 4,
we discuss our empirical ndings. We conclude with policy implications in Section 5.

2. Research background and hypothesis development

2.1. The SEC XBRL mandate
The SEC mandated a three-year phase-in of XBRL for the Securities Act registration statements (e.g.,
quarterly statements, annual reports, or transition reports). This three-year phase-in period began
after June 15, 2009. Phase I rms were the large, accelerated lers that le US GAAP nancial statements and have a worldwide public oat above $5 billion. These rms were required to comply with
XBRL reporting requirements for scal periods ending on or after June 15, 2009. Phase II rms were all
other large, accelerated lers that le U.S. GAAP nancial statements. These rms were required to
comply with XBRL reporting requirements for scal periods ending on or after June 15, 2010. All
the remaining lers were Phase III rms. These rms were required to comply with XBRL reporting
requirements for scal periods ending on or after June15, 2011. Also, rms were required to provide
tagged nancial information at different levels under a two-year period. For the rst year submission,
rms needed to tag all items on the face of nancial statements and to tag blocked text in the notes.
For the second year submission and thereafter, all items on the face of nancial statements and in the
notes had to be tagged in detail.

2.2. Theoretical framework and hypotheses development

XBRL is expected to benet all members of the nancial information supply chain by making information exchangeable between different applications and systems and easy for users to extract, search,
and re-use (Jensen and Xiao, 2001; Gray and Miller, 2009; Janvrin and No, 2012; Bartley et al., 2011).
Given the information intermediary role played by analysts, understanding analyst behavioral
changes with the SEC XBRL mandate contributes to a better understanding of its impact on the nancial information environment (e.g., Roulstone, 2003; Herrmann et al., 2007; Yu, 2010). In particular,
Jones and Willis (2003, p. 37)state that XBRL is the . . . language for the business reporting supply
chain. . .Continued enhancement of the business reporting supply chain would also transform the
analyst processes and enhance the value of related research and analyst products. Though a new
technology takes time to learn (Rai et al., 1997; Choi et al., 2008; Yao et al., 2010), anecdotal evidence
on the use of XBRL-tagged information by analysts is already available which provides us an opportunity to investigate the association between XBRL mandate and analysts forecast behaviors. For
example, over 50,000 retail analysts have used IMetrix (EDGAR-Onlines platform) to access XBRLformatted information (Willis, 2013). In addition, Morgan Stanley analysts2 are using XBRL-formatted
information through the Modelware platform for more accurate and timely decisions (Willis, 2013).
Additional evidence of analyst usage can be observed in a Hitachis report on how RIXML facilitates
the use of XBRL data by analysts.3
2
3

http://xbrl.us/Documents/XBRL_all_case_studies.pdf.
http://hitachidatainteractive.com/2011/06/15/rixml-proliferates-in-back-ofces-feeding-analysts-xbrl-data/.

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C. Liu et al. / J. Account. Public Policy 33 (2014) 6982

The level of analyst following is determined by the supply and demand for analyst services
(Bhushan, 1989; Lang and Lundholm, 1996). Earlier research regarding analyst following focuses on
rm characteristics, such as size (e.g., Bhushan, 1989) and return volatility (OBrien and Bhushan,
1990), which determine the analysts interests in a rm. Several other studies consider how a rms
disclosure practices affect analyst following decisions. For example, Lang and Lundholm (1996) demonstrate that rms with more informative disclosures have more analyst followings. Healy et al.
(1999) show that rms with higher disclosure quality and transparency are more likely to have more
analyst followings because information quality makes information acquisition less costly and thus
stimulates the supply of analyst services and the level of analyst following (Lang and Lundholm,
1996; Healy et al., 1999; Botosan and Harris, 2000; Core, 2001; Francis et al., 2002; Hannon, 2002;
Roulstone, 2003).
One perceived benet of XBRL is to improve efciency and accessibility so that nancial analysts
can incorporate more data into their analysis and follow more companies (Baldwin and Trinkle,
2011). Given the tag denitions and taxonomies, XBRL-enabled search engines are able to nd and return specic relevant information, which allows machines to understand context data and relations
among data types (Vasarhelyi et al., 2012). Another perceived benet is improved transparency and
quality of information as a result of the streamlined reporting process (Hodge et al., 2004; Debreceny
et al., 2005; Yoon et al., 2011; Kim et al., 2012). Improved accessibility and quality of information
make information acquisition less costly and thus stimulate the supply of analyst services (e.g.,
Roulstone, 2003). In addition to these two perceived benets, XBRL is believed to be vital in democratizing capital markets (Debreceny et al., 2005) by leveling the playing eld for all investors who process information from SEC lings (Kim et al., 2012). Demand for analyst services is higher for rms
whose ownership structure is widely dispersed, as concentrated ownership leads to heavier reliance
on information from private channels and more costly acquisition of analyst services for small investors (Ball et al., 2000; Chan and Hameed, 2006). Such potential effects of XBRL on supply and demand
for analyst services lead us to the following hypothesis.
Hypothesis 1. The mandatory adoption of XBRL in the U.S. for Phase I and Phase II rms is positively
associated with the number of analyst followings of a rm.
Given that analysts use information from nancial statements as an important source when determining their forecasts (Baker and Imam, 2008), prior studies have looked at the relation between
information sources and forecast accuracy. They have shown that analyst forecast accuracy decreases
with the complexity of information (e.g., Bhushan, 1989; Lang and Lundholm, 1993; Plumlee, 2003)
but increases with the informativeness of disclosure (Lang and Lundholm, 1996). Other studies
reveal a positive association between quality of disclosures and forecast accuracy (Schipper, 1991;
Vergoossen, 1993; Abarbanell and Lehavy, 2003; Peek, 2005; Baker and Imam, 2008). In our context,
XBRL is expected to improve analyst forecast accuracy by facilitating the generation and use of higherquality business information (Plumlee, 2003; Debreceny et al., 2010; Yoon et al., 2011). In addition,
Hunton and McEwen (1997) reveal that the directive information search strategy enabled by XBRL
is associated with accurate analyst forecasts. Arnold et al. (2012) nd that risk information increases
in saliency for professional analysts during the formulation of risk assessments and stock price predictions when they use tagged information. Finally, XBRL enables analysts to gain more time for valueadded analysis to increase forecast accuracy by reducing manual tasks or time waiting for additional
data from data intermediaries (e.g., information consolidators). In summary, as XBRL potentially increases accessibility to nancial reporting information and helps analysts better comprehend such
information, we expect to see a positive association between the XBRL mandate and analyst forecast
accuracy.
Hypothesis 2. The mandatory adoption of XBRL in the U.S. for Phase I and Phase II rms is positively
associated with analyst forecast accuracy for a rm.
As mentioned in Section 2, the SEC mandate requires lers to tag only nancial statements in the
rst year of adoption and to add detailed tagging of footnotes in the second year (Alles and Debreceny,
2012). Financial statements, management discussion and analysis (MD&A) and footnotes are all useful

C. Liu et al. / J. Account. Public Policy 33 (2014) 6982

73

information for nancial analysis and forecasts (Harris and Morseld, 2012). As XBRL facilitates the
integration of footnote information with related information in income statements for nancial judgments and decisions (Hodge et al., 2004), data processing costs are expected to be smaller and data
quality to be higher. As a result, analyst following and analyst forecast accuracy will increase. In addition, a new technology takes time to learn (Rai et al., 1997; Yao et al., 2010). Choi et al. (2008) show
that it takes approximately three months to learn XBRL and its related software. Therefore, we argue
that the magnitude of the hypothesized associations in Hypothesis 1 and 2 will be larger in the second
year compared to the rst year for Phase I rms.
Hypothesis 3. The magnitude of the association between the mandatory adoption of XBRL and analyst
forecast behavior (analyst following and forecast accuracy) for Phase I rms is larger in the second
year than that in the rst year.
In addition, in the rst year of adoption for Phase II lers (year two in the phase-in process), they
are required to tag only nancial statements. In contrast, Phase I lers must tag both nancial statements and footnotes in year two. In year two, Phase I lers also have more experience with XBRL,
which could potentially increase the quality of the tagged information. Based on our discussion for
Hypothesis 3, it is expected that the magnitude of the association between the XBRL mandate and
analyst forecast behavior (both analyst following and forecast accuracy) for Phase I rms is larger than
that for Phase II rms in 2010. We state our last hypothesis as follows.
Hypothesis 4. The magnitude of the association between the mandatory adoption of XBRL and analyst
forecast behavior (analyst following and forecast accuracy) for Phase I rms is larger than that for
Phase II rms in 2010.

3. Research methodology
3.1. Data collection and empirical models
We imported the lers information from the EDGAR Really Simple Syndication (RSS) feeds
monthly archives into a SQL database. From the database, based on the 10-Q and/or 10-K submitted
to the SEC from June 15, 2009 to December 31, 2010 in XBRL format, we identied Phase I and Phase II
lers. Firms that submitted such documents in XBRL before June 15, 2009 and rms that did not have
above 5 billion world-wide oat as of the second quarter of 2009 adopted XBRL on a voluntary basis
were removed from the sample to avoid potential self-selection bias in the sample. We then collected
all analyst forecast data from the I/B/E/S database in the period from 2005 to 2010. Other control variable data were gathered from Compustat and CRSP for the same period. We next combined Phase I
and Phase II lers information with analyst forecast data and control variables. From this process,
we had a dataset that contains Phase I lers, Phase II lers, and the rest of the rms with analyst forecast information before and after the XBRL mandate.
We performed the main analyses based on a matched sample and only on the 2009 sample vs. the
2010 sample. The matched sample is used to test Hypothesis 1, Hypothesis 2, and Hypothesis 4 while
the 2009 and the 2010 subsamples are used to test Hypothesis 3 and to further verify the results based
on the matched sample. We generated two sets of matched sample: Phase I lers are matched with
Phase II lers while Phase II lers are matched with non-adopters. The matching is a one-to-one
matching based on rm size and the same 3-digit SIC code.4 However, since Phase I lers are larger
(measured by oat), the results based on the matched sample may bias towards large rms. To further
validate our results, we also perform our analysis by using the full sample.
We used the following models to investigate the association between the mandatory XBRL adoption and analyst following (e.g., Bhushan, 1989; Lang and Lundholm, 1996; Irani and Karamanou,
2003) as well as analyst forecast accuracy (e.g., Kross et al., 1990; Brown, 1993, 1997; Lang and
4
We also performed a one-to-one matching based on the number of analysts following the rm and the same 3-digit SIC code.
Since larger rms tend to have more analysts following a rm, this additional matching strategy does not affect our results.

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C. Liu et al. / J. Account. Public Policy 33 (2014) 6982

Lundholm, 1996; Alford and Berger, 1999; Richardson et al., 2004; Gu and Wu, 2003; Hope, 2003;
Hope and Kang, 2005; Bradshaw et al., 2006; Barniv, 2009).

ANALYST it a0 a1 XBRL a2 SIZEit1 a3 EPSit1 a4 LOSSit1 a5 LEVERAGEit1

X
X
a6 VOLATILITY it1
Year
Industry eit

ANALYST it a0 a1 XBRL a2 POST a3 POST XBRL a4 SIZEit1 a5 EPSit1 a6 LOSSit1

X
X
a7 LEVERAGEit1 a8 VOLATILITY it1
Year
Industry eit

FACC it a0 a1 XBRL a2 SIZEit a3 LOSSit a4 VOLATILITY it a5 ANALYST it a6 EPSit1

X
X
a7 SURPRISEit
Year
Industry nit

FACC it a0 a1 XBRL a2 POST a3 POST XBRL a4 SIZEit a5 LOSSit a6 VOLATILITY it

X
X
a7 ANALYST it a8 EPSit1 a9 SURPRISEit
Year
Industry nit

where ANALYSTit is the number of analyst followings for rm i in year t (see Appendix for variable definitions). XBRL represents two different dummy variables. (1) DXBRL1: In the period between 2005 and
2010, DXBRL1 is a dummy variable that equals 1 if a rm is a Phase I ler of XBRL after 2009 and 0
otherwise. (2) DXBRL2: In the period between 2005 and 2010, DXBRL2 is a dummy variable equal to
1 if a rm is a Phase II ler of XBRL in 2010 and 0 otherwise. SIZEit1 (SIZEit) is the logarithm of rm
is total assets at the beginning of year t (at the end of year t). EPSit1 is rm is earnings per share (EPS)
at the beginning of year t while LOSSit1 (LOSSit) equals one if EPSit1 (EPSit) is negative and 0 otherwise.
LEVERAGEit1 is the leverage ratio (total liability divided by total assets) of rm i at the beginning of
year t. VOLATILITYit1 (VOLATILITYit) is the volatility of stock returns, which equals the standard deviation of monthly stock returns in year t  1 (in year t). POST is a dummy variable indicating the period
after the XBRL mandate; it equals one if the year is 2009 and 2010 and 0 otherwise. POST_XBRL is the
interaction term of POST and DXBRL1. Note that since DXBRL2 and the interaction of DXBRL2 and POST
are exactly the same, we do not estimate such equation in our analysis. FACCit is forecast accuracy for
rm i in year t, which is dened as forecast error times minus one. Forecast error is calculated by
deating the absolute difference between actual EPS and the consensus of analyst forecast EPS with
the stock price at the beginning of the year to facilitate comparisons across rms. SURPRISEit is the
earnings surprises which are the differences of the earnings per share at the beginning of year t and
at the end of year t. All models are estimated using the ordinary least square (OLS) by considering year
and industry effects (only industry effects if the model is estimated using the 2009 or 2010 subsamples) as well as the potential serial correlation of rms as suggested by Petersen (2009).

3.2. Descriptive statistics

The descriptive statistics are given in Tables 13. Table 1 shows the distribution of Phase I and
Phase II lers in 2009 and 2010. Table 1 Panel A provides the number of Phase I and Phase II rms
in our sample: 200 and 197 Phase I lers in 2009 and 2010 respectively and 1067 Phase II lers in
2010. Table 1 Panel B lists the industry composition for Phase I in 2009 and Phase II lers in 2010.
As given in Table 1 Panel B, most of the rms are in the manufacturing (1-digit SIC code 2 and 3), transportation and communication (1-digit SIC code 4), and nance (1-digit SIC code 6) industries.
Table 2 summarizes the descriptive statistics about the sample. On average, there are about 8 analysts following a rm in Panel A and Panel B. Earnings per shares, on average, are about one dollar and
the leverage ratios are about 54% and 56% for Panel A and Panel B. Table 3 presents the correlation of
variables for the period from 2009 to 2010. As shown in Table 3, we do not identify any variable with a
high correlation which might affect our regression results.

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C. Liu et al. / J. Account. Public Policy 33 (2014) 6982

Table 1
Sample distribution for year 2009 and 2010.
Year
Panel A. Year Breakdown of Phase I and Phase II Filers
2009
2010
1-digit SIC

Filer

# of Obs.

Phase I
Phase I
Phase II

200
197
1067

Phase I Filers in 2009

# of Obs.

Phase II Filers in 2010

Percent

Panel B. Industry Breakdown for Phase I and Phase II Filers

0
0
0.00
1
16
8.00
2
44
22.00
3
43
21.50
4
30
15.00
5
18
9.00
6
32
16.00
7
13
6.50
8
2
1.00
9
2
1.00
Total
200
100.00

# of Obs.

Percent

4
63
134
240
124
107
224
126
44
1
1067

0.37
5.90
12.56
22.49
11.62
10.03
20.99
11.81
4.12
0.09
100.00

See http://www.osha.gov/pls/imis/sicsearch.html for a detailed description of industries.

Table 2
Descriptive statistics.
Variable

Panel A. Full sample

ANALYSTi,t
FACCi,t
SIZEi,t1
EPSi,t1
LOSSi,t1
LEVERAGEi,t1
VOLATILITYi,t1
SURPRISEi,t

16,329
16,329
16,329
16,329
16,329
16,329
16,329
16,329

Panel B. Year 2009 and Year 2010

ANALYSTi,t
5505
FACCi,t
5505
SIZEi,t1
5505
EPSi,t1
5505
LOSSi,t1
5505
LEVERAGEi,t1
5505
VOLATILITYi,t1
5505
SURPRISEi,t
5505

Mean

Std. Dev.

Quartiles
Q1

Q2

Q3

7.960
0.034
7.162
1.088
0.228
0.538
0.040
0.183

5.973
0.217
1.937
3.982
0.419
0.276
0.022
7.610

3.420
0.020
5.760
0.090
0.000
0.330
0.020
0.430

6.090
0.010
7.050
0.940
0.000
0.530
0.030
0.180

10.750
0.000
8.390
1.970
0.000
0.720
0.070
0.840

8.251
0.051
7.257
0.588
0.313
0.559
0.070
8.251

6.180
0.312
1.905
4.993
0.464
0.285
0.004
6.180

3.450
0.020
5.890
0.310
0.000
0.350
0.070
3.450

6.330
0.010
7.190
0.650
0.000
0.560
0.070
6.330

11.420
0.000
8.470
1.800
1.000
0.740
0.070
11.420

See Appendix for variable denitions.

4. Empirical results
4.1. Main results
Our main results are given in Tables 4 and 5. Table 4 gives the results for the number of analysts
following a rm (ANALYST). First, based on the matched sample, we observe a positive association between rm size (SIZE) and the number of analysts following a rm as in prior literature (e.g., Lang and
Lundholm, 1996) (coefcients of SIZE are 2.124, 1.652, and 1.619, p < 0.01). In addition, the indication
of negative earnings (LOSS) and leverage ratio (LEVERAGE) are negatively related to analyst following

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C. Liu et al. / J. Account. Public Policy 33 (2014) 6982

Table 3
Pearson correlation.

Variables

10

1. ANALYSTi,t
2. FACCi,t
3.DXBRL1
4.DXBRL2
5. SIZEi,t1
6. EPSi,t1
7. LOSSi,t1
8. LEVERAGEi,t1
9. VOLATILITYi,t1
10. SURPRISEi,t

1.000
0.073*
0.269*
0.124*
0.449*
0.108*
0.149*
0.006
0.036*
0.021*

1.000
0.019*
0.025*
0.019*
0.086*
0.154*
0.083*
0.062*
0.088*

1.000
0.041*
0.235*
0.048*
0.044*
0.041*
0.216*
0.022*

1.000
0.097*
0.011
0.008
0.024*
0.356*
0.022*

1.000
0.223*
0.273*
0.432*
0.042*
0.015

1.000
0.385*
0.019*
0.084*
0.385*

1.000
0.013
0.142*
0.091*

1.000
0.057*
0.027*

1.000
0.060*

1.000

p < 0.05.

Table 4
Results for number of analyst following (ANALYST).
Variables

Matched sample

2009 and 2010 Full sample

Eq. (2) Phase I

Filer vs.
Phase II Filer

Eq. (2) Phase II

Filer vs.
Non-Adopters

Eq. (2) Both

Matched
Samples

Eq. (1) Phase I

Filer 2009
Sample

Eq. (1) Phase I and

Phase II Filers
2010 Sample

0.009
(0.00)
2.321***
(3.64)

4.119***
(3.54)

1.702
(0.63)
5.826***
(12.33)

1.730
(1.37)
9.922***
(17.31)
3.506***
(14.62)

1.348***
(19.61)
0.092***
(3.41)
0.001
(0.00)
1.976***
(5.16)
4.837
(0.14)
No
Yes

1.179***
(14.36)
0.016
(1.07)
0.207
(1.11)
1.928***
(4.78)
No
Year

3073
0.37

3096
0.44

Year effect
Industry effect

0.200
(0.15)
1.693***
(4.91)
2.124***
(10.22)
0.073
(1.56)
1.055*
(1.82)
3.893***
(2.83)
0.547
(0.02)
Yes
Yes

1.652***
(25.01)
0.020
(1.38)
0.255**
(2.05)
2.897***
(8.80)
11.080
(1.56)
Yes
Yes

7.509***
(4.62)
5.175***
(12.19)
3.042***
(14.26)
0.929***
(4.33)
3.661***
(13.24)
1.619***
(25.73)
0.015
(0.92)
0.199*
(1.65)
2.745***
(8.41)
8.986
(1.41)
Yes
Yes

N
Adj. R2

2223
0.33

17,723
0.29

21,034
0.36

Intercept
DXBRL1

2.255***
(10.10)

DXBRL2
POST
POST_DXBRL1
SIZEt1
EPSt1
LOSSt1
LEVERAGEt1
VOLATILITYt1

t Statistics are in parentheses and are estimated with the clustered standard error by rms as suggested by Petersen (2009). See
Appendix for variable denitions. Note that since DXBRL2 and the interaction of DXBRL2 and POST are exactly the same, we do
not estimate such equation in our analysis. For the results based on the matched sample, the summation of the coefcients of
DXBRL1 and POST_DXBRL1 are signicantly positive (p < 0.01). The coefcient of DXBRL1 is larger than that of DXBRL2 (p < 0.01).
For the results based on 2009 and 2010 subsamples, the coefcients of DXBRL1 are signicantly different with p < 0.01 and the
coefcient of DXBRL1 is larger than that of DXBRL2 (p < 0.01) based on the 2010 subsample.
*
p < 0.1.
**
p < 0.05.
***
p < 0.01.

(coefcients of LOSS are 1.055 and 0.199, p < 0.10; 0.255, p < 0.05). Second, our results based on
the matched sample demonstrate a signicantly positive association between DXBRL1 and analyst
following (the coefcients of DXBRL1 are 2.321 and 5.175, p < 0.01), DXBRL2 and analyst following
(the coefcients of DXBRL2 are 2.255 and 3.042, p < 0.01), and POST_DXBRL1 and analyst following

77

C. Liu et al. / J. Account. Public Policy 33 (2014) 6982

Table 5
Results for analyst forecast accuracy (FACC).
Variables

Intercept
DXBRL1

Matched sample
Eq. (4) Phase
II Filer vs.
non-adopters

Eq. (4) Both

matched
samples

Eq. (3) Phase I

Filer 2009
Sample

Eq. (3) Phase I

and Phase II
Filers 2010 sample

0.065**
(2.31)
0.027***
(2.75)

0.028
(1.44)

0.051***
(2.60)
0.032***
(5.16)
0.021***
(2.60)
0.015
(1.64)
0.025***
(2.63)
0.006***
(2.95)
0.075***
(8.62)
0.690***
(5.92)
0.002***
(6.14)
0.006***
(4.35)
0.004***
(3.93)
Yes
Yes
16,342
0.05

0.013
(0.15)
0.014
(0.90)

0.081
(1.63)
0.026**
(1.98)
0.029***
(3.16)

0.017**
(2.43)
0.060***
(3.72)
0.811
(1.28)
0.004***
(3.27)
0.035***
(3.87)
0.030***
(3.15)
No
Yes
2816
0.07

0.009*
(1.70)
0.069***
(3.59)
0.485**
(2.29)
0.002***
(3.40)
0.004**
(2.06)
0.003*
(1.76)
No
Year
2705
0.03

0.019***
(2.60)

DXBRL2
POST
POST_DXBRL1
SIZEt
LOSSt
VOLATILITYt1
ANALYSTt
EPSt1
SURPRISEt
Year Effect
Industry Effect
N
Adj. R2

2009 and 2010 Full sample

Eq. (4) Phase I

Filer vs.
Phase II Filer

0.001
(0.12)
0.022**
(2.09)
0.009**
(2.41)
0.040***
(3.61)
0.164
(0.67)
0.001***
(3.01)
0.004*
(1.93)
0.003
(1.27)
Yes
Yes
2185
0.08

0.005***
(2.71)
0.074***
(8.46)
0.252
(1.30)
0.002***
(6.16)
0.006***
(4.27)
0.004***
(3.92)
Yes
Yes
15,911
0.05

t Statistics are in parentheses and are estimated with the clustered standard error by rms as suggested by Petersen (2009). See
Appendix for variable denitions. Note that since DXBRL2 and the interaction of DXBRL2 and POST are exactly the same, we do
not estimate such equation in our analysis. For the results based on the matched sample, the summation of the coefcients of
DXBRL1 and POST_DXBRL1 are signicantly positive (p < 0.10). The coefcient of DXBRL1 is not signicantly different from that of
DXBRL2 (p > 0.10). For the results based on 2009 and 2010 subsamples, the coefcients of DXBRL1 are signicantly different with
p < 0.05 and the coefcient of DXBRL1 is not signicantly different from that of DXBRL2 (p > 0.10) based on the 2010 subsample.
*
p < 0.1.
**
p < 0.05.
***
p < 0.01.

(the coefcients of POST_DXBRL1 are 1.693 and 3.661, p < 0.01). The summations of the coefcients of
DXBRL1 and POST_DXBRL1 are signicantly positive (2.321 + 1.693 = 4.014 and 5.175 + 3.661 = 8.836,
p < 0.01) as well. Note that since DXBRL2 and the interaction of DXBRL2 and POST are exactly the same,
we do not include both variables in the same equation in our analysis. The results support our rst
hypothesis that the mandatory adoption of XBRL for Phase I and Phase II lers is positively associated
with the number of analysts following a rm suggesting that the adoption of XBRL may be positively
related to the supply and demand of analysts services as mentioned in Section 3. Furthermore, given
how we set up the matched sample, the signicant and positive coefcient of DXBRL1 based on the
matched sample indicates that the magnitude of the association between the mandatory adoption
of XBRL and analyst following for Phase I rms is larger than that for Phase II rms which is consistent
with our fourth hypothesis. In particular, the result suggests that the tagging of footnotes and experience with XBRL may be positively related to the quality of information and in turn, to analyst forecast behaviors. This result is further veried by comparing the coefcients of DXBRL1 and that of
DXBRL2 (5.175 > 3.042, p < 0.01 for the matched sample, 9.922 > 3.506, p < 0.01 for the 2010 subsample). Last, the results based on the 2009 and 2010 subsamples show that the coefcient of DXBRL1 is
larger based on the 2010 subsample than that based on the 2009 subsample (9.922 > 5.826, p < 0.01)
which supports our expectation in Hypothesis 3. That is, the magnitude of the association between the

78

C. Liu et al. / J. Account. Public Policy 33 (2014) 6982

mandatory adoption of XBRL and analyst following for Phase I rms is larger in the second year than
that in the rst year.
Table 5 provides the results for analyst forecast accuracy (FACC). First, the size of the rm (SIZE) is
negatively associated with forecast accuracy (the coefcients are -0.009, p < 0.05, -0.005 and -0.006,
p < 0.01). Differently, the number of analysts following a rm (ANALYST), earnings performance
(EPS) and earnings surprises (SURPRISE) are positively related to forecast accuracy. Second, the results
based on the matched sample demonstrate that, DXBRL1 and DXBRL2 are signicantly and positively
associated with analyst forecast accuracy (FACC) (the coefcients of DXBRL1 are 0.027 and 0.032,
p < 0.01; the coefcients of DXBRL2 are 0.019 and 0.021, p < 0.01). Furthermore, the summations of
the coefcients of DXBRL1 and POST_DXBRL1 are still positive (0.0270.022 = 0.005 and 0.032
0.025 = 0.008, p < 0.10). The results are consistent with our expectation in Hypothesis 2. That is, the
mandatory adoption of XBRL is positively associated with analyst forecast accuracy for a rm potentially through the improvement of transparency and the quality of information. Similar to our results
in Table 4, given the way we set up the matched sample, the signicant positive coefcient of DXBRL1
shows that the magnitude of the association between the mandatory adoption of XBRL and analyst
forecast accuracy for Phase I rms is larger than that for Phase II rms which support our fourth
hypothesis. However, when we compare the coefcients of DXBRL1 and that of DXBRL2 for the
Table 6
Results for additional analysesfull sample.
Variables

Dependent variable: ANALYST

Dependent variable: FACC

Eq. (1) Phase I

and Phase II
Filers Full Sample

Eq. (2) Phase I

and Phase II
Filers Full Sample

Eq. (3) Phase I

and Phase II
Filers Full Sample

Eq. (4) Phase I

and Phase II
Filers Full Sample

3.844***
(3.29)
6.683***
(15.23)
2.712***
(12.89)

0.040
(1.62)
0.016**
(2.40)
0.020***
(2.63)

1.629***
(25.67)
0.0198
(1.36)
0.231*
(1.88)
2.760***
(7.72)
10.47
(1.40)

3.741***
(3.21)
5.164***
(12.26)
2.878***
(13.54)
1.560***
(5.04)
3.112***
(13.08)
1.626***
(25.66)
0.019
(1.31)
0.223*
(1.82)
2.755***
(7.72)
8.396
(1.12)

0.007***
(2.88)
0.007***
(3.45)
0.076***
(8.04)

0.053***
(2.71)
0.032***
(5.21)
0.021***
(2.60)
0.016*
(1.80)
0.025***
(2.65)
0.006***
(2.93)
0.006***
(4.35)
0.075***
(8.56)

Year effect
Industry effect

Yes
Yes

Yes
Yes

0.334
(1.61)
0.002***
(5.68)
0.005**
(2.49)
Yes
Yes

0.759***
(5.90)
0.002***
(6.09)
0.004***
(3.94)
Yes
Yes

N
Adj. R2

18,189
0.34

18,357
0.34

13,798
0.05

16,372
0.05

Intercept
DXBRL1
DXBRL2
POST
POST_DXBRL1
SIZEt1
EPSt1
LOSSt1
LEVERAGEt1
VOLATILITYt1
ANALYSTt
SURPRISEt

t Statistics are in parentheses and are estimated with the clustered standard error by rms as suggested by Petersen (2009). See
Appendix for variable denitions. Note that since DXBRL2 and the interaction of DXBRL2 and POST are exactly the same, we do
not estimate such equation in our analysis. The summation of the coefcients of DXBRL1 and POST_DXBRL1 is signicantly
positive (p < 0.01).
*
p < 0.1.
**
p < 0.05.
***
p < 0.01.

C. Liu et al. / J. Account. Public Policy 33 (2014) 6982

79

matched sample and for the 2010 subsample, the difference is insignicant. Last, consistent with our
expectation in Hypothesis 3, the results based on the 2009 and 2010 subsample indicates that the
coefcient of DXBRL1 is larger based on the 2010 subsample than that based on the 2009 subsample.
As mentioned earlier, we re-perform the analyses by using the full sample to further validate our
main results. The results are given in Table 6 and are qualitatively similar to our main ndings in
Tables 4 and 5. In particular, Table 6 demonstrates that, consistent with Hypothesis 1 and Hypothesis
2, the adoption of XBRL is positively associated with analyst following and analyst forecast accuracy
(i.e., the coefcients of DXBRL1 and DXBRL2 are signicantly positive, and the summations of DXBRL1
and POST_DXBRL1 are also signicantly positive). In addition, such association is larger for Phase I lers
than Phase II lers for the number of analysts following a rm (ANALYST).
In summary, our ndings suggest that the mandatory adoption of XBRL potentially makes nancial
reports, which are a main source of analysts forecasts, more accessible and usable for analysts. The improved transparency and the integration of information may help analysts better comprehend the information in nancial reports which results in a positive association between XBRL mandate and analyst
forecast behaviors. Our ndings for Hypothesis 3 and Hypothesis 4 further validate those for Hypothesis
1 and Hypothesis 2 by ruling out the potential effects from the trends in economics. In particular, as argued earlier, since Phase I lers are required to provide additional tagging of footnotes since year two and
there is a potential learning effect for the analysts, the benet are larger in the second year.

5. Conclusions and discussion

This study examines the relation between the mandatory adoption of XBRL and analyst forecast
behavior based on Phase I and Phase II lers in the U.S. Our results indicate a positive association between XBRL and analyst following as well as analyst forecast accuracy. The ndings suggest that the
mandatory adoption of XBRL may potentially improve the accessibility and usability of nancial
reporting information which helps analysts make forecast decisions. Furthermore, such positive association is greater in year two for the Phase I lers compared to their rst year for analyst followings
and compared to Phase II lers in 2010 which could result from the additional tagging of footnotes and
the learning of this new tool.
Our ndings have several implications. First, one recent survey performed by Harris and Morseld
(2012) nd that the investor and analyst respondents of the survey express a negative view of the usability and data quality of XBRL-formatted data. Nevertheless, we document a positive association between
XBRL mandate and the richness as well as the quality of information in the information environment.
This positive association not only supports the SECs requirement to tag footnotes but also shows that
the benets of adopting XBRL have been realized in spite of errors found at the early stage of adoption
and the potential issues, such as the extensive use of extensions and the cost of access to XBRL-formatted
information, raised by the research community (e.g., Debreceny et al., 2005) and users of nancial reports (e.g., CFA, 2009; Harris and Morseld, 2012). Second, our study is also informative about the value
of XBRL to capital market participants. That is, though XBRL does not change the disclosures, it can facilitate information gathering and processing which may be benecial to sophisticated users of nancial
reporting information at the early stage of adoption. Last, our ndings provide initial empirical evidence
that can advance our understanding of the potential benets of XBRL mandate.
The following limitations should be considered when interpreting the research ndings. First, we
only focus on one element, analysts, of the information environment. Our results cannot be generalized to a rms overall information environment. Second, the comparison between Phase I and Phase II
lers in 2010 does not include the actual tagging differences as these rms are at different stages of
adoption. Our analyses are not able to fully disentangle the real causes for the differences between
Phase I and Phase II lers in 2010. In addition, given the phase-in approach of the XBRL mandate,
the matched samples built based on rm size may still bias towards larger rms. Fourth, XBRL is being
continually developed and improved. The results uncovered by this study only reect the situation before year 2011. Data availability is also limited because of the recency of the XBRL mandate. Last,
though we have incorporated relevant variables in prior studies, our research models have limited
power in explaining analyst forecast accuracy.

80

C. Liu et al. / J. Account. Public Policy 33 (2014) 6982

There are several potential future research avenues regarding XBRL and analyst forecast behaviors.
First, future research could be conducted by expanding this study to include Phase III rms and the
most recent data. It will be much clearer to see how analyst forecast behaviors change with the mandatory phases. Furthermore, including the most recent data allows us to investigate how analyst forecast behaviors are affected by the stages of adoptions. Second, since the extensive use of extensions
and the potential errors at the early stages of adoption would reduce the comparability of nancial
reports and may hinder the accessibility of XBRL-formatted nancial reports, the level of extensions
and the errors may be examined as a moderating effect between XBRL mandate and analyst forecast
behaviors. Last, though anecdotal evidence shows the use of XBRL by analysts, it is possible that only
the major institutions, such as Morgan Stanley, have XBRL-related knowledge to process XBRL-formatted information. In this vein, it would be interesting to examine whether there exists a different association between XBRL mandate and analyst forecast behavior given the size and reputation of the
institution.
Acknowledgements
The authors would like to thank the review team for their valuable comments and suggestions. The
authors also thank the participants of the 20th Annual Conference on Pacic Basin Finance, Economics,
Accounting, and Management. The authors are grateful for the nancial support from the University of
Winnipeg, the University of Hawaii at Manoa, and Loyola University New Orleans.
Appendix A. Variable denitions
Variables

Denition

Data
source

ANALYSTi,t
FACCi,t

The number of analyst following for rm i in year t

Forecast accuracy for rm i in year t, which is the forecast error
times minus one. The forecast error is calculated by deating the
absolute difference between actual earnings per share (EPS) and
the consensus of analyst forecast EPS with the stock price at the
beginning of the year
Logarithm of rm is total assets at the end of year t (SIZEi,t) or
the beginning of year t (SIZEi,t1)
The leverage ratio of rm i at the beginning of year t
The volatility of stock returns, which equals the standard
deviation of monthly stock returns at year t (at year t1)
Firm is earnings per share at the beginning of year t
The differences of the earnings per share at the beginning of year
t and at the end of year t

I/B/E/S
I/B/E/S

A dummy variable equals 1 if a rm is a Phase I ler of XBRL

after 2009, 0 otherwise
A dummy variable equals 1 if a rm is a Phase II ler of XBRL in
2010, 0 otherwise
A dummy variable that equals 1 if EPS at the end of year t
(LOSSi,t) or EPS at the beginning of year t1 (LOSSi,t1) is
negative, and 0 otherwise

EDGAR

SIZEi,t, SIZEi,t1
LEVERAGEi,t1
VOLATILITYi,t,
VOLATILITYi,t1
EPSi,t1
SURPRISEi,t
Dummy variables
DXBRL1
DXBRL2
LOSSi,t, LOSSi,t1

Compustat
Compustat
CRSP
Compustat
Compustat

EDGAR
Compustat

C. Liu et al. / J. Account. Public Policy 33 (2014) 6982

81

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