Regulation-Induced Disclosures: Is 'More' Actually 'Less'?

Abstract

Regulators and practitioners have expressed concerns that accounting disclosures have become too much and too complex resulting in negative consequences for companies and financial statement users. We investigate whether more regulation-induced disclosures are associated with more effort to prepare and use financial statements. We create an index measuring firms’ exposure to regulation-induced disclosures. We show that a higher index is associated with longer 10-Ks, a longer reporting delay and higher audit fees. A higher index is also associated with fewer analysts following the firm, lower analyst accuracy and a higher dispersion. Our findings suggest that increases in regulation-induced disclosures have unintended consequences.

Keywords: Accounting disclosures, regulation, information overload, textual analysis, analysts

JEL Classification: G14, M41, M48