The role of agency costs in the voluntary adoption of XBRL-based financial reporting
International Journal of Managerial Finance
ISSN: 1743-9132
Article publication date: 30 June 2020
Issue publication date: 16 October 2020
Abstract
Purpose
The purpose of this paper is to examine whether and how firm's agency costs played a role in the voluntary adoption of the eXtensible Business Reporting Language (XBRL) under the SEC's voluntary filing program (VFP) that encouraged the voluntary adoption of the XBRL.
Design/methodology/approach
This study employs a logistics regression and a sample of 140 firms that voluntarily participated in the VFP during its entire existence in the United States, and 140 matched-pair counterparts that did not voluntarily adopt the XBRL to investigate the role of agency costs in the voluntary adoption of XBRL-based financial reporting.
Findings
We find evidence consistent with the conjecture that a firm's low magnitude of agency costs plays a significant motivating role in the voluntary adoption of XBRL-based financial reporting. Our results continue to hold after using an alternative measure of agency costs and conducting two-stage least squares regressions. Supplementing these results, the study also shows that the level of agency costs of voluntary XBRL adopters remains statistically unchanged after the adoption while the level of agency costs associated with the firms that did not participate in SEC's VFP significantly decline after the adoption during the XBRL mandate.
Practical implications
The findings of this study suggest that based on a firm's level of agency costs, regulators and policymakers, especially those in countries that are yet to mandate XBRL reporting, can, in advance, identify firms that are more likely to comply with their new financial reporting initiatives.
Originality/value
This paper provides first evidence on the role of agency costs in the voluntary adoption of XBRL using data from the United States.
Keywords
Acknowledgements
Corrigendum: It has come to the attention of the publisher that the article by De Martinis, M., Khedmati, M., Navissi, F., Sualihu, M.A. and Tofik-Abu, Z. (2020), “The role of agency costs in the voluntary adoption of XBRL-based financial reporting”, International Journal of Managerial Finance, Vol. 16 No. 5, pp. 599-622. https://doi.org/10.1108/IJMF-01-2019-0021 initially omitted the author Michael De Martinis. The journal guidelines for the International Journal of Managerial Finance make it clear that anyone who has made a contribution to an article that meets the authorship criteria should be named as an author on the published article. The authors sincerely apologise to Michael De Martinis and the readers of the journal for any inconvenience caused.
Citation
De Martinis, M., Khedmati, M., Navissi, F., Sualihu, M.A. and Tofik-Abu, Z. (2020), "The role of agency costs in the voluntary adoption of XBRL-based financial reporting", International Journal of Managerial Finance, Vol. 16 No. 5, pp. 599-622. https://doi.org/10.1108/IJMF-01-2019-0021
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited