XBRL-formatted financial reporting and the feedback effect of price

Publication Type

Journal Article

Publication Date

3-2025

Abstract

We examine whether the SEC’s XBRL-formatted financial reporting mandate allows investors to better process public financial information, reducing the extent to which managers learn private information from stock price. We find a significant decrease in the investment-price sensitivity for firms that started to file their 10-Ks in an XBRL format, consistent with a reduction in the cost of information processing crowding out private information in stock price. We also find that the decrease in the investment-price sensitivity associated with XBRL adoption is more pronounced for firms with higher business and information complexity and for firms with higher incentives for managers to learn from stock price. Overall, our results suggest that XBRL can reduce the feedback effect of stock price and impair real efficiency as it increases investors’ ability to synthesize and integrate financial data for analysis.

Keywords

Disclosure processing costs, Feedback effect of stock price, Managerial learning, XBRL

Discipline

Accounting | Corporate Finance

Research Areas

Corporate Reporting and Disclosure

Publication

European Accounting Review

ISSN

0963-8180

Identifier

10.1080/09638180.2025.2476131

Publisher

Taylor and Francis Group

Additional URL

https://doi.org/10.1080/09638180.2025.2476131

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