Information overload and disclosure smoothing

Abstract

This paper examines whether managers can reduce the detrimental effects of information overload by spreading out, or temporally smoothing, disclosures. In our initial set of analyses, we attempt to identify managerial smoothing behavior. We find that when there are multiple disclosures for the same event date, managers, on average, spread the disclosures out over several days. We also find that managers are more likely to delay a disclosure (from its event date) when there has been a previous disclosure made within the three days before the event date. Finally, we show that managers are more likely to engage in disclosure smoothing when disclosures are longer, when the information environment is more robust, when firm information is complex, when uncertainty is high, and when disclosure news is more positive. In our second set of analyses, we examine whether there are market benefits to disclosure smoothing. Using two different measures of disclosure smoothing, we find that smoothing is associated with increased liquidity, reduced stock price volatility and increased analyst forecast accuracy. Finally, in additional analyses, we show that managers are less likely to engage in smoothing when they have negative news; they also release good news more quickly after bad news. Combined, our results suggest managers smooth disclosures and the smoothing is associated with several beneficial market outcomes.

Disclosure effectiveness in the financial planning industry

“…Nonetheless, a high volume of disclosure is also widely perceived as a problem as it may cause confusion by overloading users (Edmunds and Morris, 2000;Naynar et al, 2018;Stolowy and Paugam, 2018). In addition, drawing from behavioural models of rational choice, Chapman et al, (2019) asserts that a combination of information overload and users' time constraints would make the users susceptible to biases that can undercut the effectiveness of disclosure. Edmunds and Morris (2000) suggest the utilization of technology such as software solutions or information specialists to filter value-added information, as a solution for the information overload problem.…”

Why Do Individual Investors Disregard Accounting Information? The Roles of Information Awareness and Acquisition Costs

“…Protecting individual investors has long been an SEC priority and was reinforced by the Dodd-Frank Act in 2010. Former Chairperson Mary Jo [2016], Koester, Lundholm, and Soliman [2016], Lawrence et al [2016], deHaan, Madsen, andPiotroski [2017], Chapman [2018]), dissemination (e.g., Bushee et al [2010], Tetlock [2011], Blankespoor, Miller, and White [2014]), information overload (e.g., Dyer, Lang, and Stice-Lawrence [2017], Drake, Thornock, and Twedt [2017], Chapman et al [2018]), and recognition versus disclosure (e.g., Michels [2017]), but these studies typically do not specify which types of information costs drive their hypotheses. Differentiating between types of costs is important not only to improve understanding of market frictions but also because different costs likely affect market outcomes differently.…”

“…Of these firms, 66% begin receiving automated earnings articles on a staggered basis through the 4 For example, an individual unfamiliar with financial statements or the idea that earnings are value relevant would find it extremely costly to use accounting information. Integration costs are relevant in papers including Miller [2010], Lawrence [2013], Maines and McDaniel [2000], Chapman et al [2018], Drake, Thornock, and Twedt [2017], and . end of our sample in November 2015.…”

“…Integration costs are relevant in papers including Miller [], Lawrence [], Maines and McDaniel [], Chapman et al. [], Drake, Thornock, and Twedt [], and Blankespoor [].…”

“…[], Tetlock [], Blankespoor, Miller, and White []), information overload (e.g., Dyer, Lang, and Stice‐Lawrence [], Drake, Thornock, and Twedt [], Chapman et al. []), and recognition versus disclosure (e.g., Michels []), but these studies typically do not specify which types of information costs drive their hypotheses. Differentiating between types of costs is important not only to improve understanding of market frictions but also because different costs likely affect market outcomes differently.…”