The Interplay between Information Acquisition and Information Integration: Evidence from EDGAR Search Volume around 10-K/10-Q Filing Dates

Abstract

We investigate how investors integrate accounting information through their trading decisions. We first distinguish between information acquisition and information integration. Then, we explore two types of disclosure processing activities that constitute distinct aspects of information integration. The first, idiosyncratic interpretation, is when investors individually reach dissimilar conclusions based on common information. The second, consensus updating, is when investors jointly update their prior beliefs based on common information. Using EDGAR search volume of 10-K/10-Q reports around SEC filing dates as a proxy for information acquisition, we explore its interplay with these two aspects of information integration. Specifically, we find that, as information search increases, idiosyncratic interpretation increases, but consensus updating does not change. When we divide total search volume of 10-K/10-Q reports around SEC filing dates into search volume of newly filed reports and search volume of previously filed reports, we find that search volume of newly filed reports is associated with both increased idiosyncratic interpretation and consensus updating, whereas search volume of previously filed reports is associated with increased idiosyncratic interpretation and decreased consensus updating. We also find that the length of the report influences the association between information acquisition and information integration and that EDGAR search volume of sophisticated (retail) users appears to be more responsible for the consensus updating (idiosyncratic interpretation) effect. Taken together, our evidence suggests that information acquisition activities reveal useful insights about how investors integrate accounting information through their trading decisions.

Keywords: EDGAR search volume, Information acquisition, Information integration, Idiosyncratic interpretation, Consensus updating

JEL Classification: G14, M41