Information Pursuit in Financial-Statement Analysis: Effects of Choice, Effort, and Disaggregation

Prior research provides evidence that financial-statement users weight information less heavily in judgment when that information is provided in a less accessible format (e.g., information disclosed in a footnote or less important financial statement rather than being recognized on the income statement (Maines and McDaniel 2000)). We provide evidence that, conditional on users performing the analysis necessary to transform the financial statements to appear as if disclosed information had been recognized, users may weight that information more heavily than it would have been if it had been recognized. Our experiments are set in the context of constructive capitalization of operating leases. The first experiment manipulates three variables that we hypothesize will contribute to this effect: choice to use transformed financial statements, effort spent on the transformation process, and disaggregation of the transformed financial statements. We provide evidence that, in the constructive-capitalization setting we operationalize, effort and disaggregation encourage greater weight on transformed information. The second experiment focuses on the effort effect and replicates it with additional controls. These results have implications for standard setters who consider the relative benefits of recognition and disclosure, and for financial-statement users who transform financial statements as part of their analyses.