The Opposing Effects of Complexity and Information Content on Uncertainty Dynamics: Evidence from 10-K Filings

Joon Woo Bae (), Frederico Belo (), Jun Li (), Xiaoji Lin and Xiaofei Zhao ()
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Joon Woo Bae: Weatherhead School of Management, Case Western Reserve University, Cleveland, Ohio 44106
Frederico Belo: INSEAD, 77300 Fontainebleau, France; Centre for Economic Policy Research, London EC1V 0DX, United Kingdom
Jun Li: Jindal School of Management, University of Texas at Dallas, Richardson, Texas 75080
Xiaofei Zhao: McDonough School of Business, Georgetown University, Washington, District of Columbia 20057

Management Science, 2023, vol. 69, issue 10, 6313-6332

Abstract: We evaluate the impact of complexity and information content of 10-K filings on uncertainty dynamics following the filings. We have three main findings. First, the option-implied volatility on average increases in the first four weeks after the filings, followed by a net decrease in the subsequent six weeks. Second, this hump-shaped volatility dynamic is more pronounced for firms with larger 10-K file sizes. Third, we provide a novel decomposition of 10-K file size based on the individual sections’ disclosure amount and topic analysis and find that the discussions on topics in the “risk factors” section mainly capture the complexity aspect, whereas the discussions on topics in the “managerial discussion and analysis” section mainly capture the information content aspect of the 10-K filings. Our findings highlight the importance of timing for understanding the opposing effects of complexity and information content on asset prices.

Keywords: learning; complexity; information; volatility dynamics; textual analysis (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:69:y:2023:i:10:p:6313-6332

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