This study seeks to investigate whether a firm's financial disclosure size can help investors predict performance.
Controlling for size and industry, the relationship between financial disclosure size and subsequent stock performance for all Standard and Poor's (S and P) 500 firms over a seven‐year period is examined.
It is found that firms with smaller 10‐Ks tend to have better subsequent performance relative to their industries. However, the findings suggest that the performance explanation may not lie in the size of the 10‐K itself. Firms with smaller 10‐Ks tend to perform better because they are smaller in terms of total assets and more focused, with fewer business segments.
While the study is limited to examination of S and P 500 firms, no consistent evidence is found of a relation between changes in a firm's disclosure size and future performance changes.
The results suggest that more disclosure relative to a firm's size is not necessarily bad. Investors attempting to predict future firm performance cannot use the firm's disclosure size alone.
This paper extends two recent Merrill Lynch studies that appear to contradict the extant financial literature's view that increased disclosure reduces the informational asymmetry problem. While the results confirm the findings of these studies, they suggest that the performance explanation may not lie in the size of the 10‐K itself.
Jensen, M.R.H., Marshall, B.B. and Pugh, W.N. (2006), "Does quantity reflect quality? Financial disclosure size and future performance", Managerial Finance, Vol. 32 No. 1, pp. 39-50. https://doi.org/10.1108/03074350610641857Download as .RIS
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