Financial reporting complexity and investor underreaction to 10-K information

We study the immediate and delayed market reaction to U.S. Securities and Exchange Commission (SEC) EDGAR 10-K filings. Unusual trading volumes and stock-price movements are documented during the days around the 10-K filing dates. The abnormal price movements are positively associated with future ac...

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Bibliographic Details
Published in:Review of accounting studies 2009-12, Vol.14 (4), p.559-586
Main Authors: You, Haifeng, Zhang, Xiao-jun
Format: Article
Language:English
Subjects:
Access to information
Accounting
Accounting procedures
Accounting/Auditing
Business and Management
Cognition & reasoning
Corporate Finance
Earnings per share
Financial reporting
Investments
Investors
Public Finance
Regulatory agencies
Securities trading
Stock prices
Studies
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Summary:We study the immediate and delayed market reaction to U.S. Securities and Exchange Commission (SEC) EDGAR 10-K filings. Unusual trading volumes and stock-price movements are documented during the days around the 10-K filing dates. The abnormal price movements are positively associated with future accounting profitability, indicating that 10-K reports contain useful information about future firm performance. In addition, investors’ reaction to 10-K information seems sluggish, as demonstrated by the stock-price drift during the 12-month period after 10-K filing. We find that investors’ underreaction tends to be stronger for firms with more complex 10-K reports.
ISSN:1380-6653
1573-7136
DOI:10.1007/s11142-008-9083-2