Abstract
Researchers, regulators, and practitioners have expressed concerns that the increase in disclosures in annual reports of firms over the past decades has resulted in unintended consequences for financial statement users. We investigate whether increases in disclosure requirements are associated with increased difficulty to use financial statements. We create an index measuring firms' increasing exposure to regulation-induced disclosures in their 10-K filings and show that a higher index is on average associated with longer analyst delay, lower analyst accuracy, and higher dispersion. Consistent with information overload theory, we also find evidence consistent with an inverted-U curve: As regulation-induced disclosures increase, the decision quality of analysts initially increases. However, above a certain level of disclosures, increases in disclosures are associated with a decrease in the decision quality of analysts, as evidenced by an increase in analyst delay and dispersion and a decrease in accuracy. In addition, these adverse effects are more pronounced when analysts are less experienced, follow more firms, and have access to fewer resources. Overall, the findings suggest that increases in regulation-induced disclosures, above a certain level, are associated with information overload.
Original language | English |
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Pages (from-to) | 432-478 |
Number of pages | 47 |
Journal | Abacus-A Journal of Accounting Finance and Business Studies |
Volume | 58 |
Issue number | 3 |
Early online date | 9 Nov 2021 |
DOIs | |
Publication status | Published - Sept 2022 |
Keywords
- Accounting disclosures
- Accounting regulation
- Analysts
- Information overload
- Textual analysis
- FINANCIAL-REPORTING STANDARDS
- ANALYST FORECAST ACCURACY
- ACCOUNTING INFORMATION
- INTERNATIONAL EVIDENCE
- INVESTMENT ANALYSIS
- DECISION QUALITY
- VALUE-RELEVANCE
- COMPLEXITY
- RECOGNITION
- ACCOUNTABILITY