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Information‐Processing Costs and Breadth of Ownership

Author

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  • Jeong‐Bon Kim
  • Bing Li
  • Zhenbin Liu

Abstract

Using the U.S. Securities and Exchange Commission's mandate of eXtensible Business Reporting Language (XBRL) as a natural experiment, this study investigates whether and how the decreased information‐processing costs brought about by XBRL influence firms’ breadth of share ownership. We find that the XBRL mandate is associated with an increase in the total number of a firm's shareholders. This finding is consistent with the notion that XBRL facilitates a more transparent environment and decreases information‐processing costs, thereby attracting more shareholders in general. More interestingly, we find that while XBRL adoption is associated with an increase in share ownership of individual and non‐U.S. foreign institutional investors, it is associated with a decrease in share ownership of U.S. domestic institutional investors. Further evidence shows that this asymmetric shift in share ownership is more pronounced for more complex firms. Our findings, taken together, suggest that the decreased information‐processing costs brought about by XBRL help firms establish a level playing field by reducing the information disadvantages of individual and foreign institutional investors over domestic institutional investors. Our results are robust to potential endogeneity concerns and alternative research designs. Coûts du traitement de l'information et étendue de l'actionnariat Utilisant à titre d'expérience naturelle l'imposition par la Securities and Exchange Commission des États‐Unis de l'eXtensible Business Reporting Language (XBRL), les auteurs se demandent si la diminution des coûts du traitement de l'information engendrée par le XBRL influe sur l’étendue de l'actionnariat des sociétés et, le cas échéant, de quelle façon. Ils constatent que l'imposition du XBRL est associée à une hausse du nombre total d'actionnaires des sociétés. Cette observation est conforme à la notion selon laquelle le XBRL favorise un environnement plus transparent et réduit les coûts du traitement de l'information, attirant ainsi de manière générale davantage d'actionnaires. Fait plus intéressant encore, les auteurs constatent qu'alors que l'adoption du XBRL est associée à une hausse de l'actionnariat chez les particuliers investisseurs et les investisseurs institutionnels étrangers de l'extérieur des États‐Unis, elle est associée à une diminution de l'actionnariat chez les investisseurs institutionnels nationaux des États‐Unis. Des données complémentaires révèlent que cette asymétrie dans la transformation de l'actionnariat est plus marquée lorsque les sociétés sont plus complexes. Les constatations des auteurs, prises dans leur ensemble, laissent croire que la réduction des coûts du traitement de l'information engendrée par le XBRL aide les sociétés à créer une situation équitable en réduisant les désavantages liés à l'information auxquels sont exposés les particuliers investisseurs et les investisseurs institutionnels étrangers par rapport aux investisseurs institutionnels nationaux. Les résultats de l’étude ne sont pas sensibles aux problèmes d'endogénéité et à la permutation des plans de recherche.

Suggested Citation

  • Jeong‐Bon Kim & Bing Li & Zhenbin Liu, 2019. "Information‐Processing Costs and Breadth of Ownership," Contemporary Accounting Research, John Wiley & Sons, vol. 36(4), pages 2408-2436, December.
  • Handle: RePEc:wly:coacre:v:36:y:2019:i:4:p:2408-2436
    DOI: 10.1111/1911-3846.12451
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    References listed on IDEAS

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    1. Bodnaruk, Andriy & Ostberg, Per, 2009. "Does investor recognition predict returns?," Journal of Financial Economics, Elsevier, vol. 91(2), pages 208-226, February.
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    1. Ahrum Choi & Jeong-Bon Kim & Jay Junghun Lee & Jong Chool Park, 2024. "Market for corporate control and demand for auditing: evidence from international M&A laws," Review of Accounting Studies, Springer, vol. 29(3), pages 2753-2797, September.
    2. Ma, Guangyuan & Wang, Yihong & Xu, Yekun & Zhang, Limin, 2023. "The breadth of ownership and corporate earnings management," Finance Research Letters, Elsevier, vol. 52(C).
    3. Zhao, Ling & Huang, Hao, 2024. "Information disclosure by industry and the cost of equity: Evidence from a quasi-natural experiment in China," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 196-212.
    4. Liu, Shasha & Zhao, Huixian & Kong, Gaowen, 2023. "Enterprise digital transformation, breadth of ownership and stock price volatility," International Review of Financial Analysis, Elsevier, vol. 89(C).
    5. Cao, Zhiqi & Wu, Wenfeng, 2022. "Ownership breadth: Investor recognition or short-sale constraints?," Finance Research Letters, Elsevier, vol. 47(PB).
    6. Jiang, Shuai & Guo, Yanhong & Zhou, Wenjun & Li, Xianneng, 2023. "Identifying predictors of analyst rating quality: An ensemble feature selection approach," International Journal of Forecasting, Elsevier, vol. 39(4), pages 1853-1873.

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