Does XBRL improve usefulness of financial information to investors? Evidence from investors’ assessment of M&As

The U.S. Securities and Exchange Commission (SEC) mandated the adoption of eXtensible Business Reporting Language (XBRL) in 2009, with the aim of improving the usefulness of financial information to investors. To shed light on the usefulness of XBRL to investors, this study investigates whether XBRL adoption improves investors’ evaluations of corporate investments in mergers and acquisitions (M&A). I find that investors’ ability to evaluate the synergy generated by an M&A increases after the implementation of XBRL. Moreover, I document that the improvement in investors’ evaluation of M&A synergies is greater for deals where acquirers are more complex and for deals where acquirers have more sophisticated investors. In addition, I find that post-earnings announcement drift reduces after XBRL mandate. Further, my analysis generates evidence that XBRL adoption improves financial- information quality. Results in this paper provide evidence on whether XBRL can aid investors’ evaluation of corporate investment, which is important for asset pricing efficiency in capital markets.

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