Executive Team Information System and Financial Reporting Competencies, and Voluntary Adoption of XBRL Reporting

Abstract

The issue of determinants of voluntary XBRL adoption has drawn considerable attention from the academic community around the world. In the U.S., the voluntary XBRL adoption process evolved under the SEC-administered XBRL Voluntary Filing Program (VFP). A number of papers have attempted to study firm-specific characteristics of VFP participants. Higher innovativeness and stronger corporate governance have been found to be significant factors associated with voluntary XBRL adoption in the U.S. However, these factors do not explain the managerial interest in participating in the VFP. We extend the literature on voluntary adoption of XBRL by focusing on the characteristics of the executive team to investigate whether they are associated with the voluntary adoption of XBRL technology. Specifically, we evaluate whether executive teams (CEO, CFO, and CIO) with higher financial or information system competencies were more likely to voluntarily adopt XBRL technology by electing to participate in the VFP. We also evaluate whether financial and information system competencies within the executive team affected the quality of the XBRL-tagged filings provided under the VFP. We conjecture that higher competency levels would reduce error rates. We find that higher levels of information systems competencies were positively associated with early adoption of XBRL but, surprisingly, we find that higher levels of financial expertise were negatively associated with early adoption of XBRL. We also find that for participants in the VFP the two areas of expertise are differentially associated with XBRL filing quality. Information systems competency is negatively associated with the excessive use of extension taxonomies, errors and warning in the instance document, and reporting lag, whereas financial expertise is negatively associated with taxonomy errors and warnings. These results can be used as a guide for investigating voluntary adoption of other financial reporting technologies, voluntary XBRL filings in other jurisdictions and other voluntary disclosures such as sustainability reporting and voluntary standardized business reporting in XBRL in jurisdictions where such reporting is not mandatory. They can also be used to investigate antecedents of quality in mandatory filing regimes.