Excessive custom XBRL tag usage in 10-K filings and SEC oversight

Abstract

We conduct an in-depth examination of excessive custom XBRL tag usage in 10-K filings among U.S. firms. We discuss why some firms are prone to creating custom tags in 10-K filings and assess whether such excessive usage is associated with heightened regulatory attention from the SEC. First, we find that firms with weak internal controls are more likely to create custom tags in 10-K filings. Next, we observe a positive association between excessive custom tag usage and SEC oversight, evidenced by a higher likelihood of receiving comment letters and increased SEC involvement, which raises concerns over substantive disclosure deficiencies. In response to increased regulatory scrutiny, we document that firms reduce the proportion of custom tags in subsequent filings, and we find that SEC-reviewed custom tags enhance the informativeness of financial reports for investors. Collectively, our findings suggest that the excessive use of custom tags reflects a manifestation of firms’ disclosure deficiencies, which are mitigated during the SEC review process.