Comovement, financial reporting complexity, and information markets: Evidence from the effect of changes in 10-Q lengths on internet search volumes and peer correlations

Joshua J. Filzen and Maria Gabriela Schutte

The North American Journal of Economics and Finance, 2017, vol. 39, issue C, 19-37

Abstract: We investigate the effect of financial reporting complexity on stock comovement. We hypothesize that investors deal with complexity increases by acquiring low cost information. This information is typically informative not just about the firm of interest but also about other firms with similar fundamentals, which generates excess comovement. We find that increases in 10-Q word counts, a complexity proxy, are consistently followed by increases in 1) internet searches about the firm and 2) R2s from regressions between the firm’s returns and its peers’. On a large scale, complexity-induced comovement might hinder investors’ ability to discriminate across stocks and identify business innovators.

Keywords: Financial reporting complexity; Comovement; Information processing costs; Complementarities; Information acquisition (search for similar items in EconPapers)
JEL-codes: D83 G12 M41 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:39:y:2017:i:c:p:19-37

DOI: 10.1016/j.najef.2016.10.001

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