Managers’ choice of disclosure complexity

Jeremy Bertomeu

Journal of Accounting and Economics, 2023, vol. 76, issue 2

Abstract: Aghamolla and Smith (2023) make a significant contribution to enhancing our understanding of how managers choose financial reporting complexity. I outline the key assumptions and implications of the theory, and discuss two empirical implications: (1) a U-shaped relationship between complexity and returns, and (2) a negative association between complexity and investor sophistication. However, the robust equilibrium also implies a counterfactual positive market response to complexity. I develop a simplified approach in which simple disclosures indicate positive surprises, and show that this implies greater investor skepticism toward complexity and a positive association between investor sophistication and complexity. More work is needed to understand complexity as an interaction of reporting and economic transactions, rather than solely as a reporting phenomenon.

Keywords: Theory; Disclosure; Reporting; Complexity (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:76:y:2023:i:2:s0165410123000617

DOI: 10.1016/j.jacceco.2023.101637

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