Bloated Disclosures: Can ChatGPT Help Investors Process Information?

62 Pages Posted: 21 Apr 2023 Last revised: 6 Feb 2024

See all articles by Alex Kim

Alex Kim

University of Chicago Booth School of Business

Maximilian Muhn

University of Chicago - Booth School of Business

Valeri V. Nikolaev

University of Chicago Booth School of Business

Date Written: January 30, 2024

Abstract

Generative AI tools such as ChatGPT can fundamentally change the way investors process information. We probe the economic usefulness of these tools in summarizing complex corporate disclosures using the stock market as a laboratory. The unconstrained summaries are remarkably shorter compared to the originals, whereas their information content is amplified. When a document has a positive (negative) sentiment, its summary becomes more positive (negative). Importantly, the summaries are more effective at explaining stock market reactions to the disclosed information. Motivated by these findings, we propose a measure of information “bloat.” We show that bloated disclosure is associated with adverse capital market consequences, such as lower price efficiency and higher information asymmetry. Finally, we show that the model is effective at constructing targeted summaries that identify firms’ (non-)financial performance. Collectively, our results indicate that generative AI adds considerable value for investors with information processing constraints.

Keywords: ChatGPT, GPT, LLM, generative AI, informativeness, information processing, MD&A, conference calls, summarization, disclosure, information asymmetry

JEL Classification: C45, D80, G3; G11, G12, G14, M41

Suggested Citation

Kim, Alex G. and Muhn, Maximilian and Nikolaev, Valeri V., Bloated Disclosures: Can ChatGPT Help Investors Process Information? (January 30, 2024). Chicago Booth Research Paper No. 23-07, University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2023-59, Fama-Miller Working Paper, Available at SSRN: https://ssrn.com/abstract=4425527 or http://dx.doi.org/10.2139/ssrn.4425527

Alex G. Kim

University of Chicago Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Maximilian Muhn (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Valeri V. Nikolaev

University of Chicago Booth School of Business ( email )

5807 South Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://faculty.chicagobooth.edu/valeri.nikolaev/index.html

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