The as-filed disclosure quality score DQ (i.e., DQAs-filed) is constructed in the spirit of Chen at al. (2015); however, it is based on the more granular hierarchical structure of the GAAP reporting taxonomy relative to Compustat’s balancing model.

Chen et al. (2015) point out that Compustat reports an item as missing if either the item is applicable but the company does not report it, or the item is inapplicable. Their procedure is intended to capture instances of the former and purge instances the latter. Analogously, we select XBRL tags corresponding to Chen et al.’s 11 balance sheet and six income statement groups. For each of these grouping tags, we exclude descendant tags with missing values because they are inapplicable and retain all others in a two-step procedure: (i) For each child tag of each group tag, if the child tag and all its descendants have missing values, exclude that child tag and all its descendants. (ii) Exclude any tag (and its descendants) if that tag’s peer tags’ have values aggregated to the value of their (shared) parent tag. The available tags are the remaining descendants of the grouping tag. The number of these tags is denoted # Available Tags. The number of these tags with non-missing values is denoted # Used Tags.

We construct a disclosure score DQ for the balance sheet by value-weighting 11 balance sheet groups. Analogously, we classify tags on the income statement into six different groups based on their locations, namely revenue, operating expenses, non-operating income/expenses, interest expense, income tax expense, and income/loss from discontinued operation. Following Chen et al. (2015), the disclosure score DQ for the income statement by equal-weighting six income statement groups.

After we calculate the as-filed disclosure score for balance sheet and income statement separately, we construct a composite disclosure score by taking the simple average of the DQ scores of the balance sheet and the income statement. For more details, see Appendix C.3 of DHJ (2023).

Reference

Chen, S., B. Miao, and T. Shevlin. 2015. A new measure of disclosure quality: The level of disaggregation of accounting data in annual reports. Journal of Accounting Research 53 (5), 1017–1054.