The impact of XBRL adoption in PR China

a r t i c l e i n f o Keywords: XBRL (eXtensible Business Reporting Language) Business value of information technology Cost of capital Transaction cost theory Empirical studies EXtensible Business Reporting Language (XBRL) is expected to develop into the global data standard for business financial reporting with the potential to change the way that decisions are made. Thus, understanding its value realization in the proper business context is a vitally important issue. This study examines the impact of initial mandatory adoption of XBRL on organizations' cost of capital and transaction costs in PR China. As transaction cost theory predicts, the uncertainty related to the unproven technology increases transaction costs and the cost of capital during the early adoption period. Implications have immediate benefits for regulators, filing organizations, information consumers, the accounting profession, and other stakeholders. Understanding the business value of information technology (IT) or IT standard such as eXtensible Business Reporting Language (XBRL) is a vitally important issue in today's technology-intensive world [41]. There is a need to represent IT's value in a business context to capture the interactions between IT and the business environment [41]. XBRL, ranked as one of the top ten technologies for accounting and auditing professionals by the American Institute of Certified Public Accountants [59], has been recently developed as a potential global data standard for business financial reporting. This is in response to the increasingly important Internet disclosure of businesses' financial information, due to easier and broader circulation of financial data [18]. The U.S. Securities and Exchange Commission estimates that the direct costs to a company submitting its first interactive data financial statements with XBRL with block-text footnotes and schedules can average $40,510 with an upper bound of $82,220, while the costs for subsequent block-text filings can average $13,450 with an upper bound of $21,340 [71]. Given such adoption related costs, measuring the value realization from XBRL adoption in its proper business context is crucial to the decision for XBRL adoption [19]. Research on the impact of IT or IT standards has contributed to the investigation into justification of IT investments over the last two decades [47]. As a relatively new innovation for web-based financial reporting [22], XBRL is an information technology standard that provides an identifying tag for financial facts such as total sales to create an un-ambiguous way to identify and compare financial facts of one company to another [31]. By …