Guiding through the Fog: Financial statement complexity and voluntary disclosure

Wayne Guay, Delphine Samuels and Daniel Taylor

Journal of Accounting and Economics, 2016, vol. 62, issue 2, 234-269

Abstract: A growing literature documents that complex financial statements negatively affect the information environment. In this paper, we examine whether managers use voluntary disclosure to mitigate these negative effects. Employing cross-sectional and within-firm designs, we find a robust positive relation between financial statement complexity and voluntary disclosure. This relation is stronger when liquidity decreases around the filing of the financial statements, is stronger when firms have more outside monitors, and is weaker when firms have poor performance and greater earnings management. We also examine the relation between financial statement complexity and voluntary disclosure using two quasi-natural experiments. Employing a generalized difference-in-differences design, we find firms affected by the adoption of complex accounting standards (e.g., SFAS 133 and SFAS 157) increase their voluntary disclosure to a greater extent than unaffected firms. Collectively, these findings suggest managers use voluntary disclosure to mitigate the negative effects of complex financial statements on the information environment.

Keywords: Financial statement complexity; Voluntary disclosure; Information environment (search for similar items in EconPapers)
JEL-codes: D82 D83 G14 M41 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (132)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:62:y:2016:i:2:p:234-269

DOI: 10.1016/j.jacceco.2016.09.001

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