10‐K complexity, analysts' forecasts, and price discovery in capital markets

Abstract

This paper examines the behaviour of stock prices and analysts' earnings forecasts following firms' increasingly complex 10‐K filings. Our evidence suggests that greater information uncertainty outweighs greater analyst ability, and the net effect drives greater underreaction in analysts' earnings forecasts following the release of more complex 10‐Ks. Further analysis suggests that analyst underreaction mitigates market overreaction to the information in low‐complexity 10‐K filings, and overwhelms market overreaction to the information in high‐complexity 10‐K filings thus compromising price discovery of the earnings implications of more complex 10‐Ks.