Impact of Extensions in XBRL Disclosure on Analysts' Forecast Behavior

This paper examines the impact of abnormal extensions in eXtensible Business Reporting Language (XBRL) on analysts' forecasting behavior in the U.S. In this analysis, abnormal extensions reflect XBRL extensions that exceed the expected level for industry peers. In 2009 the Securities and Exchange Commission (SEC) permitted U.S. registrants to use the extensions to provide greater details about transactions and events unique to their reporting circumstances. Critics argue that the reporting discretion permitted under the mandate will complicate and impede financial analysis. The SEC and proponents contend that the extensions improve registrants' financial information environment and facilitate financial analysis. Our findings are that abnormal extensions are positively associated with the number of analysts who follow the firm and forecast accuracy, but negatively associated with forecast dispersion. The results are weaker during the first year and stronger during later years of the XBRL-based reporting. Moreover, the effect of the abnormal extensions on the forecasting variables is greater for filers with many business segments and/or harder-to-read financial statements. Our findings provide strong support for the SEC's policy that allows registrants to create extensions as a means of enhancing the quality and interpretation of financial disclosures.