The Effects of Reporting Complexity on Small and Large Investor Trading

Brian P. Miller

805 citations0/0 files storedThe Accounting Review

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Auditing, Earnings Management, Governance Financial Markets and Investment Strategies Financial Reporting and XBRL

Abstract

ABSTRACT: This study examines the effects of financial reporting complexity on investors’ trading behavior. I find that more complex (longer and less readable) filings are associated with lower overall trading, and that this relationship appears due to a reduction in small investors’ trading activity. Additional evidence suggests that the association between report complexity and lower abnormal trading is driven by both cross-sectional variation in firms’ disclosure attributes and variations in disclosure complexity over time. Given regulatory concerns over plain English disclosures and the trend toward more disclosure, my investigation into the effects of reporting complexity on small and large investors should be of interest to regulators concerned with reporting clarity and leveling the playing field across classes of investors.

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References

1997Disclosure level and the cost of equity capital.2008Annual report readability, current earnings, and earnings persistence 1996Corporate Disclosure Policy and Analyst Behavior.1968The Technique of Clear Writing.2010The Effect of Annual Report Readability on Analyst Following and the Properties of Their Earnings Forecasts 2000Effects of Comprehensive-Income Characteristics on Nonprofessional Investors' Judgments: The Role of Financial-Statement Presentation Format

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2016Textual Analysis in Accounting and Finance: A Survey 2016Earnings management and annual report readability 2012Processing Fluency and Investors’ Reactions to Disclosure Readability 2016Guiding through the Fog: Financial statement complexity and voluntary disclosure 2017A plain English measure of financial reporting readability 2018Tax Aggressiveness and Corporate Transparency 2011Textual Analysis of Corporate Disclosures: A Survey of the Literature

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