Does Enhanced Disaggregation and Cohesive Classification of Financial Information Help Credit Analysts Identify Firms’ Operating Structures?

Abstract:     
We report the results of an experiment designed to examine whether enhanced disaggregation and cohesive classification of information across financial statements helps professional credit analysts identify firms’ operating structures. Our results show that analysts are better able to identify the operating structures of our experimental firms when enhanced disaggregation and cohesive classification are both present on the face of the financial statements, or when the equivalent information is all presented in the footnotes. Analysts are less able to identify the operating structures when the disaggregated and classified information is spread across the financial statements and footnotes. Our results support theories emphasizing the importance of presenting related information in close proximity, and provide an important counterexample to the more common result that users respond more to information on the face of financial statements than to information disclosed in footnotes.

Number of Pages in PDF File: 43

Keywords: Financial statement presentation, classification, disaggregation, proximity, experiment, standard setting

JEL Classification: M41, C93

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