Does XBRL disclosure management solution influence earnings release efficiency and earnings management?

• Published date: 04 March 2019
• Date: 04 March 2019
• DOI: https://doi.org/10.1108/IJAIM-06-2017-0079
• Pages: 74-95
• Author: Tien-Shih Hsieh,Zhihong Wang,Mohammad Abdolmohammadi

Does XBRL disclosure

management solution inf‌luence

earnings release ef‌f‌iciency and

earnings management?

Tien-Shih Hsieh

Department of Accounting Dartmouth Charlton College of Business,

University of Massachusetts, Dartmouth, Massachusetts, USA

Zhihong Wang

Graduate School of Management, Clark University,

Worcester, Massachusetts, USA, and

Mohammad Abdolmohammadi

Department of Accounting, Bentley University, Waltham,

Massachusetts, USA

Abstract

Purpose –This study aims to investigate whether eXtensible Business Reporting Language (XBRL)

disclosure management solution improves public companies’earnings release eff‌iciency and mitigates

earningsmanagement.

Design/methodology/approach –This study adopts a unique survey data set from the Financial

Executives Research Foundation 2013 to identify companies’XBRL implementation strategies.

Earnings release eff‌iciency is measured by earnings announcement time lag. Multiple indicators of both

accruals- and real activities-based earnings management are adopted to examine the research

hypotheses.

Findings –The authors f‌ind that the disclosure management solution (DMS) XBRL implementation

is positively associated with earnings release eff‌iciency for companies with good news. The authors

also f‌ind that DMS implementation strategy is negatively related to accruals-based earnings

management, but positively related to real activities-based earnings management measured by

abnormal cash f‌lows.

Research limitations/implications –The results of this study can inform regulators, investors and

corporatemanagement on how XBRL adoption is associated with corporatef‌inancial reporting.

Originality/value –The study contributes to the XBRL literature by providing empirical evidence on

how the strategies ado pted by companies to implement XBRL m ay affect the results of XBRL mandato ry

adoption.

Keywords XBRL, Accruals-based earnings management, Disclosure management solution,

Earnings release time lag, Real activities-based earnings management

Paper type Research paper

The Financial Executive Research Foundation (FERF) generously granted access to its 2013 survey

database for this study, for which we are grateful. We thank the anonymous referees and the Editor

in Chief Maggie Liu for their valuable comments and suggestions. The paper has also benef‌itted from

comments during presentations at the 2016 Canadian Academic Accounting Association Annual

Conference and 2016 American Accounting Association Annual Meeting.

IJAIM

27,1

74

Received28 June 2017

Revised26 October 2017

Accepted3 January 2018

InternationalJournal of

Accounting& Information

Management

Vol.27 No. 1, 2019

pp. 74-95

© Emerald Publishing Limited

1834-7649

DOI 10.1108/IJAIM-06-2017-0079

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/1834-7649.htm

1. Introduction

In 2009, the Securities and Exchange Commission(SEC) in the USA issued rule No. 33-9002

(SEC, 2009) on using interactive data to improve f‌inancial reporting. This rule mandated

public companies to adopt the eXtensible Business Reporting Language (XBRL) to disclose

their f‌inancial statementsto the SEC, and also on their corporate websites. As one of the top

ten technologies in the f‌ield of accounting (Liu,2013), XBRL has attracted much attention in

accounting research to understand its inf‌luences for accounting and auditingprofessionals.

Prior conceptual studies argue that XBRL reporting generates reliable and comparable

f‌inancial reporting and improvesreporting eff‌iciency by generating data in a timely manner

(Gunn, 2007;Pinsker, 2003;Pinsker et al., 2005;Roohani et al., 2009;Wu and Vasarhelyi,

2004). However, the complexity of XBRL implementation and limited assurance for XBRL-

based f‌inancial reports may generate concerns about f‌inancial reporting quality (Guragai

et al.,2015;Harrisand Morsf‌ield, 2012;Janvrin and No, 2012;Müller-Wickopet al.,2013).

Early empirical evidence has documented mixed results regarding the effectiveness of

XBRL mandatory f‌ilings. Some studies suggest that mandatory XBRL f‌ilings may reduce

information risk and improve information eff‌iciency (Kim et al.,2012). It may also increase

market reactions to earnings surprises (Yen and Wang, 2015), improve analyst forecast

accuracy (Liu et al.,2014) and increase market liquidity (Liu et al., 2017). Other studies,

however, suggest that XBRL mandate may actually reduce f‌inancial statement

comparability (Dhole et al.,2015) and enlarge information asymmetry between larger

investors and smaller investors (Blankespoor et al.,2014). The effects of XBRL adoption

may also vary globally due to the differences in accounting values across different nations

(Liu and O’Farrell, 2013).

Liu (2013) reviews the XBRL literature and suggest that XBRLimplementation strategies

play an important role on how corporate reporting activities could benef‌it from their XBRL

adoption, which is consistent with the theoretical arguments of Garbellotto (2009a,2009b,

2009c). However, few studies haveaddressed the effects of XBRL implementation strategies.

The purpose of this study is to investigate the effects of XBRL implementation strategies,

specif‌ically, disclosure management solution (DMS) versus stand alone solution (SAS), on

public companies’earningsrele ase eff‌iciencyand earnings management.

According to Garbellotto (2009a,2009b,2009c), DMS and SAS are two dominant

strategies for XBRL implementation. Adopting the SAS strategy, companies f‌irst generate

their traditional f‌inancial statements, and then convert them into XBRL-based f‌ilings.

Theoretically, thisstrategy does not change companies’f‌inancial reporting system,but may

require additional conversion time.DMS enables companies to produce XBRL-based f‌ilings

in a more integrated manner.It requires companies to apply standardized XBRLtaxonomies

to the f‌inancial data sources (e.g. trial balance or general ledger), thus making XBRL

reporting more automatic than SAS. As the Financial Executives Research Foundation’s

2013 (FERF2013)[1] survey suggests, approximately 71 per cent of the f‌inancial executives

who responded to FERF2013 indicated that their companies were using DMS for XBRL

implementationat the time the survey was completed (Sinnett, 2013).

PricewaterhouseCoopers (2012) states that DMS for XBRL implementation could

facilitate a more automated report assembly and validation, and provides a better

environment for contextual and collaborative report review. These enhancements in the

business reporting process reduce manual data entry errors and shortendata entry and the

review time, thus, are able to improve the transparencyand eff‌iciency of f‌inancial reporting.

However, companies’reporting eff‌iciency is subject to managers’discretion. Companies

with bad earnings news may deliberatelypostpone their earnings announcement to mitigate

their negative impacts in the f‌inancial markets (Begley and Fischer, 1998;Chai and Tung,

XBRL

disclosure

management

solution

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