Limited Attention, Information Disclosure, and Financial Reporting

63 Pages Posted: 6 Jan 2004

See all articles by David Hirshleifer

David Hirshleifer

University of Southern California - Marshall School of Business - Finance and Business Economics Department; National Bureau of Economic Research (NBER)

Siew Hong Teoh

UCLA Anderson School of Management

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

David Hirshleifer (Contact Author)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

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

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Siew Hong Teoh

UCLA Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

HOME PAGE: http://www.anderson.ucla.edu/faculty-and-research/accounting/faculty/teoh

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