The Information Content of 10-K File Size Change

International Review of Finance, forthcoming

56 Pages Posted: 20 Jul 2017 Last revised: 2 Jul 2020

See all articles by Quan Gan

Quan Gan

The University of Sydney - Discipline of Finance; Financial Research Network (FIRN)

Buhui Qiu

University of Sydney Business School; Financial Research Network (FIRN)

Date Written: May 9, 2020

Abstract

Change in 10-K file size robustly and negatively predicts future stock returns. The documented return predictability reflects mainly information content of 10-K file size change on future cash flow news. We examine whether this return predictability derives from managers’ risk disclosures or disclosure obfuscation. We find that the return predictability increases in future return horizon. It is driven by positive file size changes and is stronger for firms with high information asymmetry. It is stronger when managers have more “skin in the game.” It persists even when investor attention is high. It derives from the component of file size change that cannot be explained by business fundamentals. Although word count changes in specific 10-K items can predict future stock returns, word count change in Item 1A, the risk disclosure section, has no return predictability. Our findings are broadly consistent with the managerial disclosure obfuscation explanation and suggest that lengthier 10-K disclosure, to the extent it is used by managers to obfuscate bad news, does not necessarily benefit shareholders.

Keywords: 10-K file Size Change; Readability; Disclosures; Future Stock Returns

JEL Classification: G12, G14, M41, M43

Suggested Citation

Gan, Quan and Qiu, Buhui, The Information Content of 10-K File Size Change (May 9, 2020). International Review of Finance, forthcoming, Available at SSRN: https://ssrn.com/abstract=3004403 or http://dx.doi.org/10.2139/ssrn.3004403

Quan Gan (Contact Author)

The University of Sydney - Discipline of Finance ( email )

Discipline of Finance
University of Sydney
Sydney, NSW 2006
Australia

HOME PAGE: http://sydney.edu.au/business/staff/quang

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Buhui Qiu

University of Sydney Business School ( email )

Room 513, The Codrington Building
The University of Sydney
Sydney, NSW 2006
Australia
+61 2 9036 6435 (Phone)
+61 2 9351 6461 (Fax)

HOME PAGE: http://sydney.edu.au/business/staff/buhuiq

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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