The Information Content of 10-K’s Disaggregation Quality on Future Firm Performance

67 Pages Posted: 9 Oct 2018

See all articles by Yulin Huang

Yulin Huang

The University of Hong Kong - Faculty of Business and Economics

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics

Date Written: August 15, 2018

Abstract

We propose that the disaggregation quality (DQ) of 10-K reports, which measures the detail of accounting information based on a count of non-missing Compustat line items, is valuable in predicting firms’ future performance. Empirical results show that firms with higher DQ have higher subsequent profitability and valuation. The DQ can also positively predict future stock returns in the cross section. The return predictability is stronger for young firms, firms with higher return volatility, and in periods with high investor sentiment. The findings are robust to the inclusion of variables shown to be correlated with firm operating and stock performance in the literature.

Keywords: 10-K, disaggregation quality, profitability, Tobin’s Q, stock returns

JEL Classification: G11, G12, G14, G32

Suggested Citation

Huang, Yulin and Lin, Tse-Chun, The Information Content of 10-K’s Disaggregation Quality on Future Firm Performance (August 15, 2018). Available at SSRN: https://ssrn.com/abstract=3250852 or http://dx.doi.org/10.2139/ssrn.3250852

Yulin Huang (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

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