Does Mandatory Adoption of XBRL Improve the Quality of Reported Earnings? Evidence from the Saudi Stock Exchange

Purpose: The eXtensible Business Reporting Language (XBRL) has been heralded as a tool for improving the quality of characteristics associated with business reporting, which include relevance, credibility, reliability, comparability, consistency, materiality, and understandability, providing significant benefits to all parties involved in the reporting supply chain. Specifically, this study empirically investigates whether XBRL-based financial reports improve the quality of reported earnings, thereby enhancing the credibility of financial reports.
Design/methodology/approach: Using a sample of XBRL-based financial reports for companies listed on the Saudi Stock Exchange between 2019 and 2021, the study examined whether XBRL adoption improves the quality of reported earnings.
Findings: The results show that the mandatory adoption of XBRL in the Saudi Stock Exchange did not reduce the earnings management, nor did it improve the quality of reported earnings in the financial reports between 2019 and 2021. In addition, the managers engaged in real activities-based earnings management measured by abnormal cash flows, as well as accrual-based earnings management in the post-XBRL phase. Earnings management practices increased significantly in 2021. The findings raise 
questions about audit quality, concerns about a lack of effective oversight, and require an examination of the factors that explain this high level of earnings management practices after the mandatory adoption of XBRL.
Research limitations: The XBRL reports available on the Saudi Stock Exchange website were in Microsoft Excel format. Financial information in Microsoft Excel format is no different from that in actual XBRL reports. Therefore, it is expected that the results will not be different whether the actual XBRL reports or the financial reports in Microsoft Excel format are used.
Originality/value: Since the adoption of XBRL in the Arab region is still considered to be in the initial period, there is an urgent need to study the consequences of mandatory adoption of XBRL; the results of this research provide evidence on whether XBRL plays an important role in improving the credibility of financial reporting.