Financial Statement Complexity and Meeting Analysts’ Expectations

52 Pages Posted: 6 Apr 2014 Last revised: 23 May 2015

See all articles by Joshua Filzen

Joshua Filzen

Boise State University

Kyle Peterson

University of Oregon - Charles H. Lundquist School of Business

Date Written: February 15, 2014

Abstract

We examine whether firms with greater financial statement complexity are more likely to meet or beat analysts’ earnings expectations. We proxy for financial statement complexity using the firm’s industry and year adjusted accounting policy disclosure length. Firms with more complex financial statements are more likely to just beat expectations than just miss expectations. Firms with complex financial statements appear to use expectations management to beat expectations, but do not use earnings management. Corroborating these findings, we find analysts rely more on management guidance for more complex firms. Firms with complex financial statements are also more likely to have analysts exclude items from actual ‘street earnings’, but tests suggest this strategy is not specifically used by complex firms to beat expectations. The effect we document is specific to analyst forecasts and not to other alternative benchmarks.

Keywords: financial statement complexity, policy disclosures, analyst expectations, earnings management, expectations management

JEL Classification: D84, G29, M41, M43

Suggested Citation

Filzen, Joshua and Peterson, Kyle, Financial Statement Complexity and Meeting Analysts’ Expectations (February 15, 2014). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2420603 or http://dx.doi.org/10.2139/ssrn.2420603

Joshua Filzen

Boise State University ( email )

United States
208-426-3423 (Phone)

Kyle Peterson (Contact Author)

University of Oregon - Charles H. Lundquist School of Business ( email )

1208 University of Oregon
Eugene, OR 97403-1208
United States

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