Can sell-side analysts’ experience, expertise and qualifications help mitigate the adverse effects of accounting reporting complexity?

Rani Hoitash (), Udi Hoitash () and Ari Yezegel ()
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Rani Hoitash: Bentley University
Udi Hoitash: Northeastern University
Ari Yezegel: Bentley University

Review of Quantitative Finance and Accounting, 2021, vol. 57, issue 3, No 3, 859-897

Abstract: Abstract We examine the relation between accounting reporting complexity and analysts’ performance and whether analysts’ qualifications, experience, and expertise in specific financial domains help them more effectively process complex information. We document an inverse relation between complexity and analysts’ performance. Further, we show that analysts’ firm-specific experience, industry focus, and CFA certification alleviate some of the adverse effects of complexity, whereas analysts’ general experience does not appear to do so. Using an XBRL-based approach, we also develop new measures of analysts’ expertise and find that expertise in the areas of fair value, derivatives and pension are more valuable than other analyst characteristics in attenuating the negative effects of complexity arising from transactions and events in these areas. Overall, this study underscores the importance of analyst characteristics and the need to simplify the complex disclosures in the notes to the financial statements.

Keywords: XBRL; Complexity; Financial analysts’ performance; Financial analysts’ expertise; Recognition versus disclosure (search for similar items in EconPapers)
JEL-codes: G24 G29 M41 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s11156-021-00963-8

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