Information Overload at the Capital Market

Abstract

On the basis of empirical, psychological and comparative data, the authors advocate the introduction of a shortened financial statement in Germany:

The number of duties of disclosure at the German capital market has been increased steadily by German and European legislation. As is known, these obligations of disclosure further the achievement of individual protection of investors as well as the institutional protection of investors as to protect the function of the capital market. The duties of disclosure shall ensure efficient capital markets and the existence of conditions enabling the best individual investment decision possible.

The enhancement of duties of disclosure to ensure transparency and to reduce information asymmetry succeeds decreasingly. Constantly rising costs decrease the attractiveness of quotation for companies. Many duties of disclosure are too complex and extensive and, therefore, incomprehensible for a normal, educated and interested investor – they lack a specific focus on the recipient. This pertains in particular to the annual financial statement as the most important medium for periodical disclosures.

Psychological and empirical research shows the problematic nature of information overload. This essay discusses various approaches and advocates the introduction of a shortened financial statement in order to prevent central information on the capital market from being ignored by the majority of investors. The experiences made in the UK show that the readership of the shortened financial statement is clearly increasing in contrast to that of the conventional one. Such a shortened financial statement could enable investors to get a better idea of listed companies and, thus, make a reasonable investment decision.

Keywords: Information Overload, Duties of Disclosure, Shortened Financial Statement

JEL Classification: K22