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Limited Attention, Information Disclosure, and Financial Reporting

63 Pages Posted: 6 Jan 2004  

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business; NBER

Siew Hong Teoh

University of California, Irvine - Accounting Area

Multiple version iconThere are 2 versions of this paper

Date Written: September 2003

Abstract

This paper models firms' choices between alternative means of presenting information, and the effects of different presentations on market prices when investors have limited attention and processing power. In a market equilibrium with partially attentive investors, we examine the effects of alternative: levels of discretion in pro forma earnings disclosure, methods of accounting for employee option compensation, and degrees of aggregation in reporting. We derive empirical implications relating pro forma adjustments, option compensation, the growth, persistence, and informativeness of earnings, short-run managerial incentives, and other firm characteristics to stock price reactions, misvaluation, long-run abnormal returns, and corporate decisions.

Keywords: limited attention, behavioral accounting, investor psychology, capital markets, accounting regulation, disclosure, market efficiency

JEL Classification: G12, G14, G18, G28, G38, M41

Suggested Citation

Hirshleifer, David A. and Teoh, Siew Hong, Limited Attention, Information Disclosure, and Financial Reporting (September 2003). JAE Boston Conference October 2002. Available at SSRN: https://ssrn.com/abstract=334940 or http://dx.doi.org/10.2139/ssrn.334940

David A. Hirshleifer (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States

HOME PAGE: http://sites.uci.edu/dhirshle/

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Siew Hong Teoh

University of California, Irvine - Accounting Area ( email )

Irvine, CA 92697-3125
United States

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