– This paper aims to examine the relation between the cost of debt and the adoption of eXtensible Business Reporting Language (XBRL).
– The financial data are obtained from the Compustat database. Regression analysis is used to examine the research hypotheses.
– The authors find that both voluntary and mandatory adoption of XBRL lead to a lower cost of debt for firms, with weak evidence that this reduction is greater for the former than the latter.
– The findings support the policy of the USA Securities and Exchange Commission (SEC), and thus this paper recommends that adoption of XBRL should be mandatory for all public firms.
– The findings encourage top managers to develop their firms’ XBRL systems.
– The results support the SEC’s policy of mandatory XBRL adoption, as it can lead to greater financial reporting transparency and mitigate information asymmetry between management and bondholders.
