The Impact of eXtensible Business Reporting Language (XBRL) on Financial Reporting Quality: The Case of Saudi Arabia

Abstract

This thesis explores the impact of the eXtensible Business Reporting Language (XBRL) on financial reporting quality (FRQ), within the unique regulatory and economic context of Saudi Arabia. XBRL, a digital standard for financial reporting, has been globally recognised for its potential to enhance the efficiency, accuracy, and accessibility of financial information. While prior research predominantly focuses on the United States, this study shifts the attention to Saudi Arabia, a unique and rapidly developing market that mandated XBRL adoption in 2015 without introductory phases. Thus, my original contribution to knowledge is providing new insights into how XBRL influences financial reporting in a different socio-economic and regulatory environment, utilising a comprehensive measure of FRQ and including moderating factors. This study assesses FRQ through three main proxies: earnings management, reporting timeliness, and information asymmetry. Earnings management is measured using its two forms Accrual Earnings Management (AEM) and Real Earnings Management (REM), while timeliness and information asymmetry are assessed through reporting lags and bid-ask spreads, respectively. Also, this study tests the moderating effect that Managerial Ability (MA) and Corporate Governance (CG) have on the association between XBRL and FRQ. A quantitative approach is employed, utilising a dataset of publicly listed companies in Saudi Arabia from 2010 to 2021, examining financial reports before and after XBRL mandate. Through a comprehensive analysis, the study finds that XBRL mandate in Saudi Arabia increases earnings management, conditionally enhances timeliness, and weakly reduces information asymmetry. While the moderating effect of MA and CG vary across FRQ proxies, yet in general CG has limited effect compared to MA. The results of this thesis challenge the findings of prior literature as the positive effect of XBRL adoption appears to be conditional to the implementation approach, the aim of the implementation, and the socio-economic setting. The implications of these findings are profound in several aspects. For regulators, the results support the continued adoption and promotion of XBRL, not only in Saudi Arabia but also in other emerging markets with similar characteristics. For companies, the findings highlight the importance of investing in digital reporting tools to improve reporting quality and transparency. For investors, the study underscores the benefits of XBRL in reducing risks associated with information asymmetry. Overall, this research contributes to the broader understanding of XBRL’s potential to elevate financial reporting standards globally, particularly in similar economic environments.