Comovement, Financial Reporting Complexity, and Information Markets: Evidence from the Effect of Changes in 10-Q Lengths on Internet Search Volumes and Peer Correlations

Joshua J. Filzen, Maria Gabriela Schutte

Research output: Contribution to journalArticlepeer-review

9 Scopus citations

Abstract

We investigate the effect of financial reporting complexity on stock comovement. We hypothesize that investors deal with complexity increases by acquiring low cost information. This information is typically informative not just about the firm of interest but also about other firms with similar fundamentals, which generates excess comovement. We find that increases in 10-Q word counts, a complexity proxy, are consistently followed by increases in 1) internet searches about the firm and 2) R 2 s from regressions between the firm’s returns and its peers’. On a large scale, complexity-induced comovement might hinder investors' ability to discriminate across stocks and identify business innovators.

Original languageAmerican English
JournalAccountancy Faculty Publications and Presentations
DOIs
StatePublished - 1 Jan 2017

Keywords

  • comovement
  • complementarities
  • financial reporting complexity
  • information acquisition
  • information processing costs

EGS Disciplines

  • Accounting

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