Why are 10-K Filings so Long?

SYNOPSIS: This study provides evidence on relative magnitudes of factors that appear to drive 10-K length. We employ statistical analysis and text analysis software to partition 10-K length into the portions explained by each of three fundamental determinants: (1) firms' operating complexity, (2) disclosure redundancy, and (3) residual disclosure. Our primary analyses shed light on the relative magnitudes of each of these components and on the extent to which each varies across firms. Disclosure redundancy and operating complexity explain roughly equal amounts of variation in 10-K length within our sample. However, 10-K length unexplained by redundancy or firms' operating complexity (residual disclosure) accounts for the largest degree of variation in 10-K length. Our results are consistent with the notion that a substantial amount of disclosure volume contained in 10-K reports is attributable to managerial discretion in how firms respond to mandatory disclosure requirements. Our study expands prior liter...

[1]  Kenneth J. Merkley,et al.  The Effect of Annual Report Readability on Analyst Following and the Properties of Their Earnings Forecasts , 2011 .

[2]  M. White.  The Path Forward on Disclosure , 2013 .

[3]  Kristina Rennekamp.  Processing Fluency and Investors’ Reactions to Disclosure Readability: disclosure readability and investors’ reactions , 2012 .

[4]  Tim Loughran,et al.  When is a Liability not a Liability? Textual Analysis, Dictionaries, and 10-Ks , 2010 .

[5]  Jennifer L. Blouin,et al.  Bringing it Home: A Study of the Incentives Surrounding the Repatriation of Foreign Earnings Under the American Jobs Creation Act of 2004 , 2008 .

[6]  Bin Ke,et al.  Jeopardy, Non-Public Information, and Insider Trading Around Sec 10-K and 10-Q Filings , 2005 .

[7]  Xiao-Jun Zhang,et al.  Financial reporting complexity and investor underreaction to 10-K information , 2009 .

[8]  A. Pritchard,et al.  Carrot or Stick? The Shift from Voluntary to Mandatory Disclosure of Risk Factors , 2015 .

[9]  Jeff L. McMullin.  Can I Borrow Your Footnotes? Footnote Boilerplate's Learning Externality , 2016 .

[10]  Alberto Barrón-Cedeño,et al.  On Automatic Plagiarism Detection Based on n-Grams Comparison , 2009, ECIR.

[11]  Jonathan L. Rogers,et al.  Disclosure Tone and Shareholder Litigation , 2011 .

[12]  A. Lawrence.  Individual investors and financial disclosure , 2013 .

[13]  James A. Malcolm,et al.  Detecting Short Passages of Similar Text in Large Document Collections , 2001, EMNLP.

[14]  B. Miller.  The Effects of Reporting Complexity on Small and Large Investor Trading , 2010 .

[15]  Feng Li.  Annual Report Readability, Current Earnings, and Earnings Persistence , 2008 .

[16]  Antoinette Schoar,et al.  Managing with Style: The Effect of Managers on Firm Policies , 2003 .

[17]  Kristina Rennekamp,et al.  Processing Fluency and Investors’ Reactions to Disclosure Readability , 2012 .

[18]  Paul A. Griffin,et al.  Got Information? Investor Response to Form 10-K and Form 10-Q EDGAR Filings , 2003 .