Hyungwook Yoon and Hangjung Zo are, respectively, a Doctoral Candidate and Assistant Professor at the Korea Advanced Institute of Science and Technology. Andrew Ciganek is an Assistant Professor at the University of Wisconsin-Whitewater.

With the increased use of XBRL, we are finding new opportunities to research this technology.  Based on the popular belief that XBRL adoption within the financial industry leads to reductions in the costs to both obtain and integrate what was once disparate financial data, we decided to examine whether such benefits were actually occurring.

We examined data from 550 companies in the Korean stock market. All publicly-held Korean firms have been required since October 2007 to electronically file their periodic and other financial reports in XBRL format through the DART (Data Analysis, Retrieval and Transfer) system, which is equivalent to the EDGAR system in the U.S.. Therefore, the Korean stock market presented an opportunity for us to examine the influence that XBRL adoption has for organizations.

The primary objective of our research was to determine whether XBRL adoption leads to a corresponding reduction in information asymmetry, where a select few investors have better access to information. We did this by investigating the bid-ask spread of those Korean companies, which is often used as a substitute for information asymmetry.  Monthly relative spread data was collected for seven years from September 2001 to August 2008, since this period was the most recent stable period in the Korean stock market. (The Korean market was extremely unstable for nearly four years before September 2001 because Korea experienced a severe economic crisis.  Korea officially escaped economic turmoil in August 2001.) The period after August 2008 was not included as a target period because the global financial crisis, caused by the collapse of major investment banks in the U.S., severely affected the Korean financial market. 

The result of a multiple regression analysis showed that XBRL adoption did reduce the information asymmetry of the Korean stock market, creating a more balanced system of transactions. In particular, this study confirmed that the effect of XBRL adoption on reducing information asymmetry is significant only for large companies. This relationship between firm size and information asymmetry was expected since previous research has shown that larger companies are likely to have more trading transactions, attention from analysts, and media coverage than smaller companies. 

XBRL adoption increases the transparency and quality of corporate information in the capital market and reduces the time and cost to circulate corporate information in stock markets, as well as enhances the compatibility of this information for integration among different information systems.  By facilitating corporate disclosure, information asymmetry of the capital market is notably reduced.

Our research paper with our methodology, findings, and conclusions can be purchased online.