Product Market Competition and Management Forecast : Evidence from the XBRL Adoption

This paper provides a new set of tests on the relationship between product market competition, information processing cost, and production of information by managers. The recent regulation regarding the mandatory adoption of XBRL (eXtensible Business Reporting Language) is a natural experiment that allows us to investigate a number of interesting questions on management disclosure and product market competition. Using the adoption of XBRL as an exogenous shock to information acquisition and processing costs, in a difference-in-differences framework, we find that the accuracy of management's disclosure is higher in a less competitive industry due to the relatively small disclosure-related costs. We also find that stock returns of the firms in a less competitive industry contain more firm-specific information. Overall, our results suggest that a less competitive industry leads to more disclosure and thus a better information environment. These results may help to reconcile conflicting views of previous theoretical and empirical research