An Institutional Approach to Explain the Adoption of Technical Innovations

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An Institutional Approach to Explain the Adoption
of Technical Innovations
Enrique Bonsón, Virginia Cortijo, Tomás
EscobarUniversity of Huelva, Spain
14th World Continuous Auditing and Reporting
SymposiumRutgers Business School, Rutgers
University
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OBJECTIVE

• This paper analyses the process of diffusion of
  the XBRL standard for the disclosure of financial
  information by companies.
• 2 different periods

July 2000 September 2004
September 2004 - today
Technical advantages
SEC initiatives
A true application of the standard was not
achieved
Increase in the number of companies that use XBRL
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OBJECTIVE

• The fact that the SEC has taken a firm position
  in favor of XBRL, has made an investment of 54
  million in support of that position and is
  offering greater visibility to the companies that
  use this standard, appears to be as an incentive
  for companies to take the decision to adopt the
  innovation.
• The Commission strongly believes that the primary
  benefit of tagged financial information is that
  it would allow more efficient and effective
  retrieval, research and analysis of financial
  information through automated means

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OBJECTIVE

• In spite of these benefits, by February 2007,
  only 36 companies had agreed to participate in
  the XBRL Voluntary Financial Reporting Program
  (VFRP).
• WHAT IS HAPPENING ???
• Perhaps, the technological advantages put forward
  by the SEC are not perceived by companies as
  sufficient reason to take the decision to adopt
  the standard.
• Is it appropriate for the SEC to promote another
  series of benefits, based not so much on
  technological performance but on incentives of an
  institutional character, in order to encourage
  more companies to join the XBRL Program ???

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OBJECTIVE

• The objective of this paper is to identify the
  role that institutional factors can play in the
  process of diffusion of XBRL and in the adhesion
  of companies to the XBRL Voluntary Financial
  Reporting Program of the SEC.

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BACKGROUND

• Innovation Introduction of new ideas, products,
  technologies or programs into an organization or
  the adoption of an old idea in a new context
  (Firth, 1996 Burns Stalker, 1961).
• XBRL ? innovation over its predecessor, XML
• Technical perspective improvement of the
  technological performance of the company because
  it may allow more efficient and effective
  retrieval, search and analysis of financial
  information through automated means.
• Organizational perspective the SEC establishes a
  series of steps necessary for an initial XBRL
  implementation.

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BACKGROUND

• In the process of diffusion of innovations, it is
  possible to identify various factors that may
  condition its success or failure they can
  originate from outside or inside the company
  (Sisaye, 2003).
• In the XBRL VFRP, the initiative for extending
  the diffusion of the innovation comes from a
  governmental regulatory organization (SEC) that
  has introduced a number of requirements in order
  to improve the process of disclosure of
  information by listed companies.

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BACKGROUND

• Organizational factors technical issues ?
  influence the process of implementation of
  innovations (Carvalluzo Ittner, 2004).
• The potential influence of institutional factors
  should be considered (Efferin Hopper, 2007).
• In addition to their search for economic
  efficiency, organizations seek to legitimize
  themselves and their activities, according to the
  conventions and standards of the institutional
  agents that are important in their environment
  (DiMaggio Powell, 1983 Meyer Rowan, 1977
  Zucker, 1977).

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BACKGROUND

• In the VFRP, the SEC is only taking into account
  the technical factors that could motivate
  companies to take the decision of using XBRL for
  disclosing their financial information.
• Institutional factors have not been considered.
• ?
• Objective of this paper identify the role that
  institutional factors can play in the process of
  diffusion of XBRL and in the adhesion of
  companies to the XBRL VFRP.

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METHODOLOGY

• To reach our objective, we conducted a Delphi
  study in which experts of XBRL were asked about
  the reasons, in their opinion, that would
  motivate organizations voluntarily to submit
  supplemental tagged financial information using
  XBRL.
• Ultimate goal ? to identify additional reasons
  that might be incorporated by the SEC into its
  arguments aimed at securing greater participation
  in the Voluntary Filing Program and, in this way,
  contribute to expanding the use of the XBRL
  standard.

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METHODOLOGY

• Delphi Technique systematic and iterative
  process by which the opinions of a group of
  experts are obtained, reconsidered and modified
  with the purpose of reaching a consensus view
  among those experts, if that is possible.
• Experts of this study
• Academics who are conducting their research on
  XBRL.
• Professionals who work in companies involved in
  the development and use of the standard.
• Members of XBRL International.

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First Questionnaire

• A questionnaire was e-mailed to 58 experts, in
  which they were requested to indicate the
  relative importance that, in their opinion, could
  be attributed by companies to a number of reasons
  for deciding to participate in the XBRL Voluntary
  Filing Program.
• We extracted the list of reasons from a review of
  the literature on the process of adoption of
  innovations technical and institutional factors.
  
• Final open question.

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Motivations that may lead companies to
participate in the XBRL Voluntary Filing Program
1 To acquire a company image as a pioneer in technology
2 To have the opportunity of influencing the future development of this new technology and directing it towards your objectives
3 To gain a deeper knowledge of XBRL to be able to benefit from all its advantages
4 To become familiar with XBRL in order to install it later at the transactional level
5 To facilitate relationships with the regulatory authorities, in particular with the SEC
6 To obtain faster reviews by the SEC
7 To improve the companys image in the financial markets and thus gain more support
8 To improve the companys image in the information society
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Motivations that may lead companies to
participate in the XBRL Voluntary Filing Program
9 To compete with other companies that are applying XBRL through the SECs Voluntary Program
10 To improve the quality of financial information provided to the various users of this information
11 XBRL enables the production of personalized reports
12 XBRL enables the production of new reports that include information of both financial and non financial character
13 XBRL facilitates comparability between the different parts of the company
14 XBRL facilitates comparability between companies
15 XBRL makes financial information easier to understand
16 XBRL facilitates the analysis of company accounts
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Motivations that may lead companies to
participate in the XBRL Voluntary Filing Program
17 Because it is a metalanguage, XBRL allows search and consultation tools to be used
18 Errors are avoided because the process of data entry is simplified
19 Time is saved in the preparation of financial information
20 Time is saved in accessing financial information
21 The costs of preparing financial information are reduced
22 The costs of accessing financial information are reduced
23 The costs of issuing capital are reduced
24 Greater transparency in information disclosure is achieved
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First Questionnaire

• Rate of response 50 ? 29 usable responses
• 16 academics.
• 13 professionals.

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Additional reasons that experts suggested in the
first questionnaire

• XBRL can walk users through the complexities of
  elaborating financial information. The ability to
  leverage XBRL metadata, including business rules,
  reduces the training and/or knowledge required to
  create a financial statement.
• The ability to leverage XBRL metadata, including
  business rules, allows better adherence to rules
  and the complex disclosure presentation
  requirements.
• The ability to leverage XBRL metadata, including
  business rules, allows better reuse of financial
  information and better integration with software
  applications.

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Additional reasons that experts suggested in the
first questionnaire

• Companies want to provide feedback on how well
  the technology works to ensure that it is a great
  solution for all companies, encouraging other
  companies to collaborate as well.
• Companies want to put their name behind the
  program in order to help make the program
  successful.
• Firm managers aim to be viewed by market
  participants and regulators as possessing high
  integrity. Furthermore, the increased
  transparency facilitated by XBRL allows firm
  managers to send signals to the marketplace
  regarding their effort to disclose all relevant
  information on a timely basis.

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Second Questionnaire

• The 2nd questionnaire was prepared, including
  these additional reasons and some information
  about the overall results of the first round.
• We asked the same set of experts to revise their
  initial responses, if they wished, and to comment
  on any first round responses that fell outside
  the interquartile range of responses.
• Our objective was to assess whether they changed
  any of their decisions in the light of the
  aggregate replies of all respondents.

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Third Questionnaire ???

• A two-round Delphi method was employed because,
  although this technique is used to find consensus
  views, this is not the ultimate objective.
• We decided to stop our study in the second round
  because we already had enough information to draw
  conclusions.

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FINAL RESULTS (SECOND ROUND)
Reason Mean St.Dev
1 To gain a deeper knowledge of XBRL to be able to benefit from all its advantages 7.067 1.624
2 To acquire a company image as a pioneer in technology 6.733 2.251
3 The ability to leverage XBRL metadata, including business rules, allows better reuse of financial information and better integration with software applications 5.933 2.890
4 To improve the companys image in the financial markets and thus gain more support (From an institutional perspective, a characteristic of the environment is the establishment of rules and requirements to which organizations should conform individually if they wish to receive support and legitimacy from that environment ? organizational survival depends on the conformity of the organization to institutionalized rules and procedures) 5.933 2.052
5 Greater transparency in information disclosure is achieved 5.867 2.997
6 To become familiar with XBRL in order to install it at the transactional 5.867 1.457
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DISCUSSION

• According to experts, the principal reasons that
  would lead companies to participate in the VFP
  are predominantly institutional rather than
  technological in character.
• However, the technical advantages of XBRL may be
  the reason why companies would decide to use the
  standard internally, and this may indirectly lead
  them also to join the VFP.

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ASSESSMENT OF THE BENEFITS PROMOTED BY THE SEC
Rank Benefits (SEC) Reason (Questionnaire) Mean
6 Registrants that use XBRL internally will have improved internal reporting process To become familiar with XBRL in order to install it at the transactional level 5.867
8 XBRL will lower the cost of accessing to financial information The costs of accessing to financial information are reduced 5.667
15 XBRL tagged data will encourage companies to provide comparable information XBRL facilitates comparability between companies 5.267
18 XBRL may make the tagging process more accurate Errors are avoided because the process of data entry is simplified 5.067
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ASSESSMENT OF THE BENEFITS PROMOTED BY THE SEC
Rank Benefits (SEC) Reason (Questionnaire) Mean
22 XBRL will free resources from manual reporting to do work that really adds value to the company XBRL facilitates the analysis of company accounts 4.800
25 XBRL will lower the costs of producing financial information The costs of preparing financial information are reduced 4.400
28 Tagged information has the potential to increase analyst coverage and investor interest in a registrants securities this could increase liquidity in the market and lower the cost of capital The costs of issuing capital are reduced 3.867
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CONCLUSION

• These results demonstrate that the technological
  factors stressed by the SEC to stimulate
  participation in the VFP are not being perceived
  as sufficiently important reasons for taking an
  affirmative decision.
• The technical advantages are not, by themselves
  alone, determining factors for a company when
  deciding, and should be accompanied by
  motivations of institutional character if wider
  and more effective adoption of the standard is
  desired

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CONCLUSION

• By such institutional means, it should be
  possible to create a critical mass of early
  adopter companies that subsequently obtain clear,
  direct and demonstrable benefits from the
  technical advantages of the innovation.
• This would, in turn, constitute a solid low-risk
  foundation on which those companies seeking
  merely the performance improvements offered by
  the innovation can base their decision to adopt
  it.
• The result should be the fullest possible
  diffusion of the innovation.

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Thanks for your attention