Journal of Business Research 64 (2011) 157–163

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Journal of Business Research

Does XBRL adoption reduce information asymmetry?

Hyungwook Yoon a, Hangjung Zo a,⁎, Andrew P. Ciganek b
a
Department of Management Science, Korea Advanced Institute of Science and Technology (KAIST), Republic of Korea
b
College of Business and Economics, University of Wisconsin-Whitewater, 800 West Main Street, Whitewater, WI 53190, United States

a r t i c l e i n f o a b s t r a c t

Article history: This paper examines whether or not XBRL (eXtensible Business Reporting Language) adoption reduces
Received 1 July 2009 information asymmetry in a stock market context. Student t-tests and multiple regression analysis were
Received in revised form 1 January 2010 employed to examine the effect of XBRL adoption on information asymmetry in the capital market. A
Accepted 1 January 2010
significant and negative association exists between XBRL adoption and information asymmetry, which
implies that the adoption of XBRL may lead to the reduction of the information asymmetry in the Korean
Keywords:
XBRL
stock market. In addition, the effect of XBRL adoption on reducing information asymmetry is stronger for
Information asymmetry large-sized companies than for medium-sized and small-sized companies. Based on these findings, the
Corporate disclosure demand for XBRL-enabled applications and services in the capital market is expected to grow while
Firm size governments should promote XBRL adoption for business reporting.
Korean stock market © 2010 Elsevier Inc. All rights reserved.

1. Introduction filing companies. If a company provides financial reports in a high-

Many companies use the World Wide Web (WWW or web) as one
of the primary means for reporting corporate information (Debreceny
and Gray, 2001). The content of corporate information on the web is
not very different from financial disclosures on paper-based docu-
ments. This content has been standardized for human review, not for
automatic location, acquisition, arrangement and classification. Infor-
mation is hard to find unless one knows which form to search and the
data in those forms cannot be downloaded into spreadsheets or other
application software (SEC (U.S. Securities and Exchange Commission),
2006). As a result, corporate information on the web cannot
adequately meet the demand of stakeholders for various analyses of
corporate data. Additional technical components must be deployed
that support the decision-making capabilities of stakeholders and
XBRL (eXtensible Business Reporting Language) is an approach to
achieve this.
XBRL is one variant of XML (eXtensible Markup Language) for
business reporting. XBRL defines financial data on the web with
explicit semantics in a machine-readable format, making automated
data analysis possible. Adopting XBRL facilitates communications
among market players and enhances the quality of stakeholder
decisions. Business reporting in the XBRL format is also important to
⁎ Corresponding author. Department of Management Science, Korea Advanced Institute
of Science and Technology (KAIST), 119 Munji-ro, Yuseong-gu, Daejeon, 305-732, Republic
of Korea. Tel.: +82 42 350 6311; fax: +82 42 350 6339.
E-mail addresses: backbeat@kaist.ac.kr (H. Yoon), joezo@kaist.edu (H. Zo),
ciganeka@uww.edu (A.P. Ciganek).
quality, standard format, investors are likely to appraise the company
as less risky. This could lead to the decrease of capital cost and the
increase of the firm's stock price. Diamond and Verrecchia (1991)
report that if the level of disclosures is increased, the level of
information asymmetry is decreased, resulting in more demand
from investors. If the level of financial disclosures is increased by
adopting XBRL, information asymmetry is expected to be reduced,
which could lead to the decrease of the cost of capital and the increase
of a firm's valuation.
This study examines whether the adoption of XBRL has reduced the
level of information asymmetry in the Korean stock market. Korea is
one of the leading countries that have developed a mandatory filing
program in XBRL format. This policy has been in effect in Korea since
October 2007, thus the Korean stock market is an appropriate target
market to investigate the initial effect of XBRL adoption. The principal
focus of this study is to empirically examine whether XBRL adoption
can reduce information asymmetry in the capital market. While
previous studies have primarily investigated the effects of the short-
term provision of corporate information (e.g., earnings announce-
ments) on information asymmetry, this paper focuses on the
fundamental change of the technological environment affecting
information asymmetry.
The next section of the paper describes the concept and benefits of
XBRL and reviews the literature of corporate disclosures and
information asymmetry. Hypotheses about the relationship of XBRL
and information asymmetry are then developed followed by a
description of the data used in the analysis and how information
asymmetry is measured. The next sections contain findings of the
analysis along with a discussion of the implications of this research.

0148-2963/$ – see front matter © 2010 Elsevier Inc. All rights reserved.
doi:10.1016/j.jbusres.2010.01.008
158 H. Yoon et al. / Journal of Business Research 64 (2011) 157–163
2. Literature review
2.1. XBRL
XBRL is a standard XML reporting language to enhance the
efficiency, reliability and accuracy of financial reporting. Data in
XBRL format does not need to be converted from one application to
another because data are independent of applications by using
standard tags for data items (Farewell, 2006). XBRL can support
both financial and non-financial data contexts, which distinguishes
XBRL from traditional financial documents (Debreceny et al., 2005).
The use of standard tags in XBRL documents allows for the specific
identification, automatic exchange, and reliable extraction of financial
information across different software applications.
Many businesses, regulators, and investors can benefit from XBRL.
XBRL helps integrate disparate business reporting procedures across
business reporting jurisdictions; reduces the costs of compliance with
reporting regulations and data-quality assurance services; and
facilitates the communication between businesses and financial
markets. XBRL facilitates continuous reporting for investors on
companies' operations by enabling the capture, integration, proces-
sing, and reporting of disparate information in common formats. XBRL
reduces the cost associated with obtaining and assimilating informa-
tion from businesses and the cost associated with international
business reporting standards (Weber, 2003).
With the adoption of XBRL, financial information can be optimized
for machine creation, publication, discovery, consumption, and reuse,
and XBRL enables supply chains of information for business reporting
to communicate among players more efficiently (Debreceny et al.,
2005). For example, the use of financial data in XBRL format can help
enhance the effectiveness and efficiency of post-merger integration.
In addition, the information flow between material providers and
logistic companies can be streamlined, and this contributes to the
increase of efficiencies in supply chains.
XBRL supports the decision-making process for investments by
enabling a powerful search capability for various financial data.
Novice through expert investors are able to easily search and compare
data items which have similar or the same tags. Hodge et al. (2004)
argues that although the information in the footnote of financial
statements is important, novice investors have a difficult time
thoroughly analyzing the data due to their lack of experience and
the relative position of the data. XBRL-enabled searching technology
resolves this problem.
The tags of XBRL provide additional information to investors
because these metadata describe the meaning of data items. Russo
(1977) reports that information should be presented in a usable
display format, illustrated through an experimental study finding that
information organized in a single list format enhances the decision-
making capabilities of users. Hodge et al. (2004) applies those results
to a comparative analysis of alternative accounting choices across
companies and found that users could easily identify the differences of
discretional accounting choices so search-facilitating technology like
XBRL can improve the transparency of financial reporting. A recent
survey indicates that additional XBRL benefits include cost savings
due to an increased data processing capability, decreased data
redundancy, increased efficiency, and decreased cost of bookkeeping
(Pinsker and Li, 2008).
2.2. Financial reporting process and XBRL in Korea
All publicly-held firms electronically file their periodic and other
financial reports through the DART (Data Analysis, Retrieval and
Transfer) system in Korea. Most financial report filings, including
periodic financial statements, are mandatory while others are
voluntary. Annual reports must be submitted within 90 days
after the end of the fiscal year while semi-annual and quarterly
reports must be submitted within 45 days after the end of each fiscal
quarter.
The DART system, which is equivalent to the EDGAR (Electronic
Document Gathering and Retrieval) system in the U.S., was developed
in August 1998 with the initial pilot service of the system in April
1999. Paper filings have not been allowed since January 2001 so most
data in important corporate disclosure reports are freely available
online. In addition, more than 60% of transactions in the Korean stock
market are executed via electronic transaction systems. Most
investors in Korea can get information related to their investment
decisions and trade stocks electronically.
The Korean stock market complies with all international standards
of financial disclosure and was incorporated into the FTSE (Financial
Times Stock Exchange) global equity index series in September 2008.
The Korean stock market does not have designated market makers,
which is different from the U.S. stock market. Most transactions are
executed directly between sellers and buyers via computerized
trading systems.
Korea is a leader in adopting and deploying XBRL in financial
reporting, ahead of the U.S., Japan, and the EU, by having a mandatory
filing program in XBRL format. All publicly-held firms in Korea have
been required to report financial statements in XBRL format since
October 1, 2007 (FSS (Financial Supervisory Service), 2007). The
companies listed in the KOSPI (Korea Composite Stock Price Index)
and the KOSDAQ (Korean Securities Dealers Automated Quotations)
must file their financial reports, including annual, semi-annual, and
quarterly reports, to the DART system using XBRL format.
2.3. Corporate disclosure and information asymmetry
Corporate disclosure is mandatory or voluntary activities for
providing information about a firm's performance and governance
to outside investors and is one of the fundamental elements for the
efficiency of the capital market (Healy et al., 1995; Shaw, 2003).
Efficiencies in the capital market are achieved when financial
information, including statements, footnotes, management discus-
sion, analysis and forecasts, are circulated seamlessly among various
stakeholders. Government agencies require public companies to
disclose their financial statements (SEC (U.S. Securities and Exchange
Commission), 2009) to enable these efficiencies. Corporate disclosure
provides investors with a common pool of knowledge for investment
decisions.
Insufficient corporate disclosure is closely related to the problem
of information asymmetry as information asymmetry creates ineffi-
ciencies in the capital market. Information asymmetry occurs when
one party in a transaction has more or better information than
another (Biswas, 2004; Grewala et al., 2003; Kulkarni, 2000). Frankel
and Li (2004) report that the request for reducing information
asymmetry in the capital market led to the creation of the 1934
Securities Act. Benston (1973) explains that the rationale behind the
disclosure requirements of the 1934 Securities Act was to build a fair
and efficient capital market. Benston (1973) insists that fairness is a
significant issue to the capital market, and that all investors should
have the same level of access to corporate financial information. Lev
(1988) emphasizes the need for public regulation mandating the
disclosure of corporate financial information to reduce information
asymmetry in the capital market. Diamond (1985) argues that the
disclosure of corporate information can serve as an incentive for
producing private information, and companies can raise the welfare of
their security holders through the disclosure of financial information.
The increased level of corporate disclosure can reduce proxies of
information asymmetry, including bid–ask spread. Research examin-
ing mandatory disclosure (Greenstein and Sami, 1994; Hagerman and
Healy, 1992; Leuz and Verrecchia, 2000) as well as voluntary
disclosure (Healy et al., 1999; Heflin et al., 2005; Welker, 1995) has
found similar effects on information asymmetry in the capital market.
 H. Yoon et al. / Journal of Business Research 64 (2011) 157–163
For example, the disclosure of segment information (Greenstein and
Sami, 1994) and the disclosure of the present value of oil and gas
reserves (Boone, 1998; Raman and Tripathy, 1993) are associated
with the decline of bid–ask spread. Schrand and Verrecchia (2004)
argue that the disclosure activity followed by an IPO is inversely
related to bid–ask spread. Leuz and Verrecchia (2000) compare the
bid–ask spread of the Neuer Market in Germany, which requires a
relatively higher level of disclosure, with the Frankfurt Exchange,
which requires a relatively lower level of disclosure. The results
demonstrated that the stocks listed in the Neuer Market had a smaller
bid–ask spread and higher liquidity than those listed in the Frankfurt
Exchange.
3. Hypotheses
XBRL enhances the information searching capability of investors,
which reduces information asymmetry in the capital market. XBRL
achieves this by improving the quality of information rather than
increasing the quantity of information. XBRL facilitates a continuous
flow of information, which is vital for the democratization of markets
(Debreceny et al., 2005). The improved, transparent, and real-time
financial reporting and disclosure of data in XBRL format reduces the
firm's cost of capital (XBRL International, 2002). Pinsker and Li (2008)
found that XBRL use is associated with an increased level of reporting
transparency. Hodge et al. (2004) argue that novice investors are
more likely to benefit from using an XBRL-enabled search engine than
professional financial analysts. Hunton and McEwen (1997) find that
more accurate analysts use a directive information search strategy
while less accurate analysts employ a sequential search strategy. This
indicates a theoretical relationship between information search
strategies and forecast accuracy. Frederickson and Miller (2004)
found that professional analysts use well-defined valuation models,
while novice investors use ill-defined and heuristic-based valuation
models. The use of XBRL is more likely to change the analysis behavior
of novice investors than that of professional analysts because the tags
and taxonomy of XBRL provide a powerful and straightforward
searching and analyzing capability.
An increased level of corporate disclosure reduces information
asymmetry in the capital market (Greenstein and Sami, 1994;
Hagerman and Healy, 1992; Healy et al., 1999; Heflin et al., 2005;
Leuz and Verrecchia, 2000; Welker, 1995). Increases in the transpar-
ency and quality of information occur following the adoption of XBRL
to report corporate financial information (Debreceny et al., 2005;
Pinsker and Li, 2008). Investors of all experience levels benefit from
the powerful searching capability of XBRL (Frederickson and Miller,
2004; Hodge et al., 2004). Based on these discussions, XBRL adoption
reduces information asymmetry in the capital market by increasing
the level of corporate disclosures.
H1. XBRL adoption reduces information asymmetry in the capital
market.
The U.S. Securities and Exchange Commission (SEC) has proposed
a regulation that requires companies to disclose the financial
information in XBRL format based on a phase-in schedule. The SEC
plans to apply this regulation to 500 large companies in 2009 and
expand to the remaining companies in three years. This step-wise
approach by the SEC implies that the benefits of adopting XBRL may
be related to firm size; in particular, that the benefits may be greater
for large companies than for small companies. This is consistent with
research that has found a positive and significant association between
firm size and corporate disclosure (Botosan, 1997; Cooke, 1989;
Premuroso and Bhattacharya, 2008).
The effect of breadth of market attracted is larger for large firms,
which receive the largest benefit from reduced information asymme-
try (Diamond and Verrecchia, 1991). Large firms must attract large
159
holdings from institutional investors who make large trades and are
thus more concerned about future liquidity than smaller groups of
investors (Diamond and Verrecchia, 1991; Greenstein and Sami,
1994; Zhou, 2007). Large firms also receive greater attention from
investment analysts and the media (Chiang and Venkatesh, 1988).
Many researchers argue that firm size is negatively associated with
proxies for information asymmetry, including bid–ask spread (Chiang
and Venkatesh, 1988; Easley et al., 2002; Greenstein and Sami, 1994;
Hasbrouck, 1991; Leuz and Verrecchia, 2000). Weber (2003) argues
that the advantage of adopting XBRL is more likely to be greater for
large companies that conduct cross business reporting jurisdictions
than for small companies that operate within a single business
reporting jurisdiction because XBRL helps integrate distinct business
reporting procedures. Based on these discussions, the benefits of XBRL
adoption is likely to be greater for large companies than for small
companies.
H2. The effect of XBRL adoption on reducing information asymmetry
is stronger for large companies than for small companies.
4. Method
The primary objective of this paper is to examine whether XBRL
adoption reduces information asymmetry in the capital market. The
Korean stock market was selected as the target for this study since all
public companies have been reporting financial information in XBRL
format since October 2007. This section identifies measures for
information asymmetry, followed by a discussion of the data
collection procedure and analysis method.
4.1. Information asymmetry measures
A few proxy measures for information asymmetry, including bid–
ask spread, trading volume, and stock price volatility, have been
proposed (Leuz and Verrecchia, 2000). The bid–ask spread refers to
the difference between the price quoted by buyers and the price
quoted by sellers for a given security. If information asymmetry does
not exist in the capital market, which means that all market players
have the same information, the bid–ask spread should be zero. A
positive association exists between information asymmetry and bid–
ask spread because as information asymmetry increases, the bid–ask
spread also increases. The bid–ask spread has been used extensively
to measure the degree of market efficiency. The trading volume
indicates the amount of securities for the given period of time. If
information asymmetry decreases, the intention of selling and buying
tends to increase, resulting in an increase in trading volume; a
negative relationship exists between these two measures. Stock price
volatility is defined as the variation (or standard deviation) of return
from a given security for a specific period of time. Volatility generally
represents uncertainty or risk in the capital market. If the information
asymmetry of the capital market is low, and the market is efficient, the
stock price volatility tends to be low. Wang (1993) argues that
increases in information asymmetry can cause stock price volatility to
increase because the adverse selection among traders becomes more
severe.
Among the three proxy measures, the bid–ask spread is a common
and appropriate measure for information asymmetry (Leuz and
Verrecchia, 2000). Trading volume and price volatility are closely
related with information asymmetry, but many factors other than
information asymmetry influence these measures. Clarke and Shastri
(2000) empirically compared the different proxy variables to measure
information asymmetry and illustrated that market microstructure-
based measures (e.g. bid–ask spread) are superior to other measures
such as analysts' forecasts measures and investment opportunity set
measures. Aitken and Frino (1996) and Stoll (1989) recommend that
the bid–ask spread be used as a proxy for information asymmetry. The
160 H. Yoon et al. / Journal of Business Research 64 (2011) 157–163
bid–ask spread is effective in both a quote-driven and an order-driven
market, such as the Tokyo Stock Exchange, the Paris Bourse, and the
Korea Stock Exchange.
Several types of spread for information asymmetry have been
commonly employed in the previous research including effective
spread, quoted spread, and adverse selection component of spread.
Adverse selection component of spread is inappropriate in this study
because no market makers exist in the Korean stock market. Spreads
are hardly decomposed by inventory cost, order processing cost, and
adverse selection component. Effective spread is a better measure for
information asymmetry since most transactions occur at prices
between quoted bid prices and quoted ask prices (Heflin et al.,
2005). This study used daily closing bid and ask prices instead of
transaction-based prices.
Based on these discussions, this study followed Boone's (1998)
approach and employed the relative quoted spread as a proxy
measure for information asymmetry, which can be computed using
the following formula:
Ask Price−Bid Price
Relative Spread =  : ð1Þ
Ask Price + Bid Price
2
4.2. Analysis methods
A t-test and multiple regression analysis were employed to
examine the effect of XBRL adoption on information asymmetry in
the capital market. The difference of the means of information
asymmetry between the pre-adoption and post-adoption period can
be detected by using a paired t-test. A multiple regression analysis can
determine whether XBRL adoption reduces the level of information
asymmetry and whether the effect of XBRL adoption is stronger for
large-sized companies than medium-sized and small-sized compa-
nies. Information asymmetry is a dependent variable, and XBRL
adoption is the main explanatory variable in the regression model.
Firm size, trading activity, volatility, and stock price are included as
control variables in the regression model because research has
indicated that these variables have a close association with informa-
tion asymmetry. These control variables have been added to the
model for explaining the variance of information asymmetry. The
relative spread in the regression model was computed by using Eq. (1)
on a daily basis. XBRL adoption was treated as a categorical variable.
The pre-XBRL adoption period was coded as 0 and the post-XBRL
adoption period was coded as 1.
Firm size was measured by a firm's market value of equity.
Previous research has found that information asymmetry is negatively
associated with firm size (Chiang and Venkatesh, 1988; Easley et al.,
2002; Greenstein and Sami, 1994; Hasbrouck, 1991; Leuz and
Verrecchia, 2000). Large firms tend to have high trading activities
and receive more attention from media and investment analysts. The
level of information asymmetry for large-sized firms is likely to be
lower than that of small-sized firms. Firm size should be negatively
associated with information asymmetry, which is measured by
relative spread.
Turnover rate indicates the trading volume in a given time period
for a specific firm divided by the total number of shares of the firm's
stock. Like trading volume, turnover rate reflects the degree of trading
activity. Trading activity has a negative association with information
asymmetry (Copeland and Galai, 1983). Stocks with high trading
activities have more liquidity, attract more uninformed investors, and
increase the likelihood that important information can be reflected in
stock price. A negative association should exist between turnover rate
and relative spread. As stated earlier, stock price volatility has a
positive association with relative spread. In quote-driven markets,
volatility indicates the degree of uncertainty or risk. In a high volatile
market situation, market makers may quote with high spread to
compensate for the risk (Kanagaretnam et al., 2007).
The stock price metric is the average stock price of each firm for a
given time period. Some researchers argue that stock price is
positively associated with relative spread (Amihud and Mendelson,
1986; Glosten and Harris, 1988), while other studies propose that
stock price should be negatively associated with relative spread
(Venkatesh and Chiang, 1986). The relationship between stock price
and relative spread is not conclusive because a market environment
with high information asymmetry challenges investors to accurately
evaluate a firm's performance.
The following regression model, which includes all the variables
discussed above, examines whether XBRL adoption reduces informa-
tion asymmetry in the capital market:
Spreadit = β0 + β1 XBRLit + β2 Sizei + β3 Turnoverit + β4 Volatilityit
+ β5 StockPriceit + εit ð2Þ
where i denotes firm and t denotes either pre-adoption period or
post-adoption period.
4.3. Data
All public companies in Korea have been required to submit their
financial information in XBRL format since October 2007. To
investigate the effect of XBRL adoption on the Korean stock market,
the pre-adoption period is December 2006 to August 2007, while the
post-adoption period is December 2007 to August 2008. The target
periods were selected based on three factors. First, the two months
after XBRL adoption (October and November 2007) have been
excluded from the analysis since all public companies in Korea are
required to submit quarterly reports within 45 days from the end of
the quarter. October and November 2007 were excluded because the
initial effect of XBRL adoption could not be confirmed during these
months. Second, 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 impacted the Korean
financial market beginning in September 2008. The Korean stock
market was distorted due to this exceptional crisis, so the period from
December 2007 to August 2008 (nine months) was used as the post-
adoption period. Finally, the pre-adoption period included the period
from December 2006 to August 2007 (nine months). The same
calendar months were examined for both periods to minimize
seasonal effects.
Only transaction data of common stocks was examined. Transac-
tion data was excluded where trading volume was zero and either bid
price or ask price was zero. The transaction data was obtained from
the Korea Exchange (KRX) database, which consists of 550 Korean
firms.
5. Findings
5.1. Descriptive statistics
Table 1 presents the descriptive statistics of variables for the pre-
adoption and post-adoption periods and also shows a comparison of
the sample means for each variable between the pre-adoption and the
post-adoption period. The paired t-test indicates that the means of all
the variables are significantly different between the pre-adoption
period and the post-adoption period (all the p-values are less than
0.01 or 0.05). The mean of the relative spread for the post-adoption
period (0.77%) is slightly higher than that for the pre-adoption period
(0.64%), which is in conflict with hypothesis H1. A number of
variables, such as XBRL adoption, firm size, turnover rate, and stock
price, may also influence the increase of the relative spread. A
 H. Yoon et al. / Journal of Business Research 64 (2011) 157–163 161

Table 1
Descriptive statistics and comparison of sample means: pre-adoption period and post-adoption period.

Pre-adoption period Post-adoption period t-test

Variable Min Max Mean S.D. Min Max Mean S.D. t p-valuea

Relative spread 0.0013 0.0332 0.0064 0.0038 0.0013 0.0270 0.0077 0.0047 11.76 0.00
Firm size 1.01 × 104 8.70 × 107 1.30 × 106 4.92 × 106 9.51 × 103 8.99 × 107 1.43 × 106 5.20 × 106 3.04 0.00
Turnover rate 0.0003 0.0796 0.0087 0.0095 0.0002 0.0842 0.0059 0.0082 − 9.51 0.00
Volatility 0.0164 0.0838 0.0403 0.0091 0.0156 0.0820 0.0419 0.0107 4.64 0.00
Stock price 5.65 × 102 1.29 × 106 4.20 × 104 1.12 × 105 3.38 × 102 1.30 × 106 4.43 × 104 1.11 × 105 2.50 0.01

Relative spread is the average of daily bid–ask spread computed by Eq. (1). Firm size (in Korean million won) is the average of a firm's market value (closing price multiplied by the
number of shares outstanding). Turnover rate indicates the average daily share turnover (daily trading volume divided by the firm's number of shares outstanding). Volatility means
the average daily stock price volatility computed by the difference between daily highest price and lowest price divided by the average of the highest and the lowest. Stock price
(in Korean won) is the average daily stock price.
a
p-values are two-tailed.

multiple regression analysis method was performed to identify the regression model. All of the relationships between the independent
effects of these explanatory variables on the relative spread. and dependent variables from the regression model are consistent to
what was expected.
The data was classified into three groups based on firm size to
5.2. Multiple regression results
examine the effect XBRL adoption has on information asymmetry. The
Korean government considers a firm large-sized with equity greater
A multiple regression analysis using Eq. (2) examined the effect of
than 50 billion won (about 40 million U.S. dollars), small-sized with
XBRL adoption on information asymmetry. Regression analyses
equity less than 8 billion won (about 6 million U.S. dollars), and
assume that variables have a normal distribution. A logarithmic
medium-sized with equity between 8 billion and 50 billion won.
transformation of the data was performed to ensure that the
Seventy-seven (77) small-sized firms, three-hundred and four (304)
normality assumption was met. Mahalanobis' (1936) distance was
medium-sized firms, and one-hundred and sixty-nine (169) large-
computed using the data to identify outliers, and no significant
sized firms were among the 550 firms in the data using the above
outliers were found. The Pearson correlation coefficients (Table 2) and
classification. A multiple regression analysis was performed on the
variance inflation factors (VIF) (Table 3) were calculated to identify
three datasets using Eq. (2). Table 4 presents the results of a multiple
multicollinearity concerns in the dataset. Despite a relatively high
regression analysis based upon a firm's equity.
correlation between firm size and stock price (0.64), all of the VIF
XBRL adoption reduces information asymmetry only for the large-
values are less than 10. Multicollinearity is not a concern in the
sized companies. The regression coefficient of XBRL adoption for the
dataset (Myers, 1990). In addition, a visual examination of the scatter
large-sized companies is − 0.09 and is significantly associated with
plot of the standardized residuals and the Breusch–Pagan test
relative spread (p-value = 0.00). For the medium-sized and small-
(Breusch and Pagan, 1979) were performed to detect the problem
sized companies, the regression coefficient of XBRL adoption was not
of heteroscedasticity. The residuals are normally distributed but
significant (p-values are 0.22 and 0.81 respectively). The effect of
evidence of heteroscedasticity exists from the Breusch–Pagan test
XBRL adoption on reducing information asymmetry is stronger for
(χ2 = 140.63, p-value = 0.00). The method of White's (1980) stan-
large-sized companies than for small-sized companies, which sup-
dard errors was employed to solve the heteroscedasticity problem.
ports hypothesis H2. Almost all control variables, including firm size,
The multiple regression analysis (Table 3) show that the regression
turnover rate, volatility, and stock price, have a significant association
model significantly predicts relative spread (F ratio = 1323.68) and five
with relative spread across the three datasets. The stock price of the
independent variables, including XBRL adoption, firm size, turnover
large-sized companies was not significantly related to relative spread
rate, volatility, and stock price, which explains 86% of the variation in
(p-value = 0.27), indicating that stock price does not have an effect on
relative spread (adjusted R2 = 0.86). All independent variables are
relative spread for the large-sized companies.
significantly associated with the dependent variable.
The multiple regression results support that XBRL adoption
The regression coefficient for XBRL adoption is − 0.05 and is
reduces information asymmetry (hypothesis H1) and the effect of
significantly related to relative spread (p-value = 0.00). The informa-
XBRL adoption is stronger for large-sized companies (hypothesis H2).
tion asymmetry of the Korean capital market, measured by relative
Market-wide effects may also explain the trend of decreased
spread, was significantly reduced after XBRL was adopted in Korea,
information asymmetry in the capital market. To address this issue,
which supports hypothesis H1. The coefficient for firm size is both
(1) the overall trend of relative spreads in the Korean stock market
significant and negative. This result indicates that firm size is
were explored and (2) an additional regression was performed to
negatively associated with information asymmetry. Turnover rate is
determine whether the dummy variable (XBRL adoption) has a
also negatively related to information asymmetry. Opposite of these
significant negative coefficient before XBRL adoption in Korea.
findings, the analysis shows that volatility and stock price have a
Monthly relative spread data was collected for seven years from
significantly positive association with information asymmetry in the
September 2001 to August 2008 since this period was the most recent,
stable period in the Korean stock market. The Korean market
Table 2
Correlations among variables.
Table 3
Variable 1 2 3 4 5 Results of multiple regression analysis.
1. Relative spread
Variable VIF Beta t p-value Model statistics
2. XBRL adoption 0.12**
3. Firm size − 0.71** 0.01 XBRL adoption 1.16 − 0.04 − 3.26 0.00 Dependent variable:
4. Turnover rate − 0.56** − 0.24** 0.02 Firm size 2.08 − 0.74 − 39.18 0.00 relative spread
5. Volatility 0.06* 0.06* − 0.21** 0.50**
Turnover rate 1.95 − 0.63 − 40.27 0.00 N = 1100
6. Stock price − 0.17** − 0.02 0.64** − 0.35** − 0.28** Volatility 1.52 0.27 18.97 0.00 Adjusted R2 = 0.86
** Stock price 2.26 0.16 8.49 0.00 F = 1323.68 (p-value = 0.00)
p < 0.01 (two-tailed).
*
p < 0.01 (two-tailed). p-values are two-tailed. Standardized coefficients (Beta) are shown.
162 H. Yoon et al. / Journal of Business Research 64 (2011) 157–163

Table 4 The effect of XBRL adoption on reducing information asymmetry is

Results of multiple regression analysis depending upon firm's equity. stronger for large companies than small companies. A negative
Small-sized Medium-sized Large-sized association between firm size and information asymmetry is expected
companies companies companies since many studies argue that larger companies are likely to have
Variable more trading transactions, attention from analysts, and media
XBRL − 0.01 (− 0.24; 0.81) − 0.03 (− 1.26; 0.21) − 0.09 (− 3.47; 0.00) coverage than smaller companies (Chiang and Venkatesh, 1988;
adoption Diamond and Verrecchia, 1991; Greenstein and Sami, 1994; Zhou,
Firm size − 0.75 − 0.67 − 0.67
2007). This study confirmed that the effect of XBRL adoption on
(− 20.30; 0.00) (− 20.91; 0.00) (− 12.91; 0.00)
Turnover − 0.89 − 0.83 − 0.56 reducing information asymmetry is significant only for large
rate (− 22.84; 0.00) (− 39.85; 0.00) (− 17.51; 0.00) companies.
Volatility 0.45 (13.98; 0.00) 0.35 (14.08; 0.00) 0.28 (7.65; 0.00) Four control variables, including firm size, turnover rate, volatility,
Stock price 0.44 (10.84; 0.00) 0.25 (6.77; 0.00) 0.04 (0.93; 0.36) and stock price, were examined to explain the variance of information
asymmetry of the Korean stock market. As expected, firm size was
Model statistics
N 154 608 338 negatively associated with information asymmetry. Corporate infor-
Adjusted R2 0.89 0.77 0.78 mation from large companies is likely to be distributed more easily
F (p-value) 244.48 (0.00) 409.74 (0.00) 238.25 (0.00) than that of small companies due to high trading activities and more
p-values are two-tailed. Standardized coefficients (Beta) are shown with t values and attention from media and investment analysts. Turnover rate is also
p-values in parentheses. negatively related to information asymmetry. Stocks with a high
turnover rate tend to attract more liquidity and investors, and the
was extremely unstable for nearly four years before September information about the stocks is likely to circulate around investors
2001 because Korea experienced a severe economic crisis. Korea more frequently and rapidly. Volatility is positively associated with
officially escaped economic turmoil in August 2001. A simple information asymmetry. Volatility indicates the degree of uncertainty
regression on the data revealed no significant market-wide trend of or risk, so market makers in a highly volatile market tend to quote
decreased relative spreads during this period (adjusted R2 = − 0.004, with a high spread to evade risk. Stock price is also positively related
β = −0.09, t = − 0.82, p-value = 0.42). with information asymmetry. When a firm reports financial perfor-
“Pre” and “post” periods were examined using data from four years mance in a standard XBRL format, investors tend to evaluate the firm
before the original analysis and a multiple regression analysis was as less risky, possibly decreasing capital cost and increasing a firm's
performed to see if the results were the same as Table 3. By doing so, stock price. XBRL adoption also reduces information asymmetry,
the “pre” period became December 2002 to August 2003 while the which may also raise the firm's stock price. The relationships between
“post” period became December 2003 to August 2004. The periods the control variables and information asymmetry from the Korean
from four years earlier were examined because they showed the most stock market are consistent with the findings of previous literature.
similar patterns of spreads to the original research periods. Table 5
shows the results of the multiple regression analysis. The dummy 7. Conclusions and implications
variable, XBRL adoption, has a significant positive coefficient. This is
contrary to the original results in Table 3, which indicates that XBRL Accounting and finance research argues that an increased level of
adoption drives the reduction of information asymmetry. No market- corporate disclosure lowers the information asymmetry of the capital
wide effect exists on the reduction of information asymmetry in the market. Numerous experts insist that XBRL adoption enhances the
Korean stock market. transparency and quality of business reporting, so XBRL adoption
should decrease the information asymmetry of the capital market.
6. Discussion This study examines the relationship between XBRL adoption and
information asymmetry in the capital market.
This paper examines whether XBRL adoption reduces the This study supports the conclusion that XBRL adoption reduces the
information asymmetry of the stock market in Korea. Data was information asymmetry of the Korean stock market. Highly significant
collected from 550 companies in the Korean stock market to compare and negative associations between XBRL adoption and information
the level of information asymmetry, measured by relative spread, asymmetry of the capital market were found after controlling for
both before and after the adoption of XBRL. A multiple regression potentially confounding factors, such as firm size, turnover rate,
analysis showed that XBRL adoption reduced the information volatility, and stock price. This study also examines the effect of XBRL
asymmetry of the Korean stock market. XBRL adoption reduces the adoption on reducing information asymmetry for large-sized firms
time and cost to circulate corporate information in stock markets as over medium-sized and small-sized firms. The effect of XBRL adoption
well as enhances the compatibility of this information for integration is stronger for large firms than for small firms.
among different information systems. XBRL adoption also increases This study has a few limitations. First, a relatively short period after
the transparency and quality of corporate information in the capital XBRL adoption (nine months) was examined. Korea was one of the
market, which improves the search capability of XBRL and the leading countries in the world to require using XBRL in business
circulation of corporate information. Finally, XBRL adoption facilitates reporting (FSS (Financial Supervisory Service), 2007), but less than
corporate disclosure, which reduces the information asymmetry of two years later, the global financial crisis severely changed the capital
the capital market. market. Further analysis with a longer sampling window is necessary
to verify the benefits of XBRL adoption. Second, the effect of XBRL
Table 5 adoption on reducing information asymmetry was examined, focus-
Results of multiple regression analysis before adopting XBRL. ing on the benefits for investors. Future research should examine
Variable VIF Beta t p-value Model statistics additional benefits of XBRL adoption for various stakeholders.
This study also has several implications. First, evidence of the
XBRL adoption 1.01 0.07 5.19 0.00 Dependent variable:
Firm size 1.60 − 0.78 − 45.35 0.00 relative spread benefits from XBRL adoption was illustrated by examining the Korean
Turnover rate 1.78 − 0.61 − 31.51 0.00 N = 980 stock market. These findings can be an empirical and theoretical
Volatility 1.74 0.37 22.86 0.00 Adjusted R = 0.82 foundation to accelerate the adoption of XBRL in other countries. The
Stock price 1.79 0.14 6.63 0.00 F = 906.27 (p-value = 0.00) effect of XBRL on reducing information asymmetry enhances the
p-values are two-tailed. Standardized coefficients (Beta) are shown. quality of valuation for firms and decreases capital cost. The results of
 H. Yoon et al. / Journal of Business Research 64 (2011) 157–163
this study provide strong incentives for firms to provide XBRL-
enabled applications and services to their stakeholders. Consequently,
the demand for XBRL-enabled applications and services in the capital
market will continue to grow. Finally, this study found that XBRL
adoption is not significant for medium-sized and small-sized
companies. A broader deployment of XBRL-enabled applications and
services is needed, which could be aided by greater cooperation
among the various stakeholders, such as filing companies, solution
vendors, service providers, and government agencies.
Acknowledgments
The authors acknowledge Judy Anderson and Aaron Garrett
(Jacksonville State University) for the helpful feedback and constructive
criticism. The authors are grateful to Editor in Chief Arch Woodside,
Associate Editor David M Smith, and anonymous reviewers for their
valuable guidance and insightful comments throughout the review
process.
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