Does XBRL Adoption Imporve Information Asymmetry? Evidence from Taiwan Public Companies

Abstract

This paper examines whether or not XBRL (eXtensible Business Reporting Language) adoption reduces information asymmetry in Taiwan’s Public companies. Recently, XBRL and International Financial Reporting Standards (IFRS) have gradually received substantial attention in the accounting field and the international capital market. Users of financial information can analyze and convert financial reports into the same format by using XBRL. This study evaluated whether XBRL adoption reduced information asymmetry. Prior scholars have used bid-ask spread as a proxy variable of information asymmetry to explore whether XBRL adoption reduced information asymmetry. This study focused on information asymmetry in Taiwan’s capital market. In addition to using bid-ask spread as a proxy variable of information asymmetry, we used stock turnover ratio and earnings volatility as proxy variables for measuring the level of information asymmetry. The results of this study demonstrated that XBRL adoption significantly affects the information-asymmetry proxy variables and that effectively reduce information asymmetry in Taiwan’s capital market. Based on these findings, the government should promote the XBRL usages in financial reporting and require XBRL adoption by all public companies to enable financial information users XBRL.