Say Again? Assessing Redundancy in 10-K Disclosures

Abstract:     

The SEC and the FASB are deliberating how to address the substantial repetition contained in firms’ 10-K filings. However, little systematic evidence exists regarding the content or determinants of redundant disclosures. We produce important descriptive evidence regarding the evolution and current content of redundant disclosures. Using panel data, we find that redundant disclosures increased substantially around 2002, and that industry and firm-operating characteristics explain cross-sectional variation in disclosure redundancy. We also find evidence that managers repeat text within the 10-K more often when current and future earnings performance is worse. Finally, we find that disclosure redundancy is associated with less efficient price discovery after 10-K filings. While managers’ intentions are unobservable, our evidence is consistent with the theory that managers repeat certain disclosures opportunistically — attempting to hide or downplay bad news — to make 10-Ks more difficult to read when earnings are worse. Overall, our findings are consistent with the view that managers exploit overlapping disclosure rules by presenting more redundant information when incentives to obfuscate the content of the 10-K are higher. This study supports calls from market participants urging the SEC and FASB to work together to streamline disclosure requirements.

Number of Pages in PDF File: 44

Keywords: redundancy, 10-K readability, financial disclosure, textual analysis

JEL Classification: G18, M41, D82