Wall Street is not getting much use out of expensive financial data generated by a Securities and Exchange Commission-backed technology platform designed to help analysts extract financial details about companies for analysis, according to a new study issued by Columbia University researchers.
The platform, known as eXtensible Business Reporting Language (XBRL), was first sanctioned by the SEC in 2009, and has been phased in as a requirement for public companies over the past few years. Yet the authors of the study, released by Columbia Business School’s Center for Excellence in Accounting and Security Analysis, say that fewer than 10 percent of investors currently use the company data provided through XBRL.
Some critics of XBRL blame its low usage on the complexity of its electronic data tagging system, which requires companies to select from a list of nearly 15,000 tags to categorize financial information. Filing XBRL documents requires public companies to employ technologists who understand its taxonomy as well as the nuances of their particular industry.
The XBRL system was mandated by the SEC as a way to make the data contained in financial filings such as annual reports more available to investors interested in mining it for valuable analytical insights. Due to the burden of implementation, the SEC initially required only large public companies to file XBRL versions of their financials. It also requires companies to file both a hard copy and an XBRL copy of each document.
“The real problem is that companies are still submitting the plain-text version [of financial filings] in addition to the XBRL version,” says Hudson Hollister, executive director of the Data Transparency Coalition, a trade association focused on data disseminated by the federal government.
The XBRL versions tend not to incorporate all of the data contained in the plain-text versions, and are notoriously error-prone. Since the SEC started requiring XBRL, there have been nearly 1,250 data-tag restatements, according to research firm Baseline Insights.
Many analysts instead rely on third-party data aggregators such as Bloomberg and Google Finance, which scrape data from the plain-text versions, a cumbersome and sometimes costly process that nonetheless is perceived as more reliable than XBRL.
XBRL traces its origins back to Morgan Stanley in the early 2000s, where a managing director named Trevor Harris worked on a precursor called ModelWare. Harris, now the Arthur J. Samberg Professor of Professional Practice at Columbia Business School, is the lead author of the new study.
It may sound surprising that one of the fathers of XBRL has become one of its most vocal critics. But the study’s co-author, Suzanne Morsfield, who also worked at Morgan Stanley, says it was partly born out of the notion that the capabilities of today’s data technologies and Internet-based services may have already eclipsed those of XBRL.
In addition, Morsfield says, analysts increasingly are relying on unstructured data to augment the information gleaned from a public company’s financial statements. XBRL was designed expressly for use by the SEC, and therefore is not currently capable of incorporating data not certified by a company’s accountants.
“There are hints in the Columbia report that the technology could provide transaction-level detail and that it may be possible now for big data platforms to use unstructured data, too,” says Hollister of the Data Transparency Coalition. He also notes that the SEC is a highly fragmented government organization, which has many offices that don’t always work well together. The result, he says, is that the commission has implemented a system that is not widely used, in part because it hasn’t been developed to its full potential.
“Things are evolving so fast,” says Columbia’s Morsfield, that analysts who were interested in incorporating data from XBRL into their research activities have already moved on to other solutions. “These guys thought it would be ready. There’s an expectational gap.”
Alec Foege, a contributing editor at Data Informed, is a writer and independent research professional based in Connecticut, and author of the book The Tinkerers: The Amateurs, DIYers, and Inventors Who Make America Great. He can be reached at email@example.com. Follow him on Twitter at @alecfoege.
Home page image of Wall Street sign by JSquish via Wikipedia.