Does the Adoption of iXBRL Improve Data Usability? Evidence From Future Earnings Response Coefficients

Abstract

This paper examines how the adoption of iXBRL affects future earnings response coefficients (FERCs), which measure investors’ ability to predict future performance and impound the prediction into the current-year stock price. By following the research design of Ettredge, Kwon, Smith, and Zarowin (2005) and Kim, Kim, and Lim (2019), we find that the adoption of iXBRL is positively associated with FERCs. This finding indicates that investors can better anticipate the future performance from iXBRL filings and reflect it on the current stock price. We also find that the number of standardized and extension tags can strengthen the association between iXBRL adoption and FERCs, demonstrating the benefit of those two tags in enhancing investors’ capabilities to analyze complex financial disclosures. Our findings are informative to the SEC regarding the effectiveness of the iXBRL mandate. We also contribute to the emerging literature on iXBRL adoption and the usability of iXBRL filings.