The Effect of Information Complexity on Analysts' Use of That Information

Abstract

In this study I investigate the relation between information complexity and financial analysts' use of that information. I rank by complexity six tax-law changes enacted by the Tax Reform Act of 1986, and then examine analysts' explicit forecasts of effective tax rates around those changes. I show that analysts' revisions of their forecasts of effective tax rates appear to impound the effects of the less complex tax-law changes but not the more complex changes. Furthermore, as expected, if analysts assimilate less complex (but not more complex) information, the magnitude of the errors in their forecasts of effective tax rates increases with the effects of the more complex tax-law changes, but is unrelated to the less complex changes. Taken together, these results indicate that analysts assimilate less complex information to a greater extent than they assimilate more complex information. Either analysts' abilities to incorporate specific information into their forecasts is a decreasing function of the complexity of that information, or analysts choose not to assimilate complex information because the cost would exceed the benefit. In either case, complexity reduces analysts' use of information. These results demonstrate the importance of considering information attributes, such as complexity, when investigating why analysts' forecasts fail to incorporate all public information.

Impact of situational framing and complexity on charismatic, ideological and pragmatic leaders: Investigation using a computer simulation

“…As complexity increased, charismatic leaders seemed to prefer the pragmatic situation to either the ideological or charismatic situation. This finding is consistent with Mumford (2006), Kukalis (1991), andPlumlee (2003) who suggested that vision formation may prove difficult in ambiguous conditions. At first glance, this pattern is somewhat contradictory with the findings of Bedell-Avers et al (in press) that seemed to suggest charismatic leaders preferred less-structured conditions.…”

“…As noted earlier, it may be difficult for a charismatic leader to form a future-oriented vision in highly complex conditions (Kukalis, 1991;Plumlee, 2003). In these highly complex conditions, however, charismatic leaders may be adequate problem-solvers if, indeed, asked to be (i.e., placed into a pragmatic situation).…”

“…Under conditions of high complexity, however, the future may be relatively unknowable thereby reducing the influence and impact of these leaders under such conditions (Kukalis, 1991;Plumlee, 2003). Moreover, charismatic leaders are also vision-based and present their view of the future in a positive, almost utopian, light.…”

The Accounting Profession's Engagement with Accounting Standards: Conceptualizing Accounting Complexity through Big 4 Comment Letters

“…First, previous research on accounting complexity has focused on studying the relationship between different measures of complexity and firm, manager, or user performance (e.g., Plumlee 2003;Bushman et al 2004;Li 2008;Miller 2010;Lehavy et al 2011;Peterson 2012;Filzen and Peterson 2015). Such studies generally measure complexity using quantitative proxies, which are presented as objective characteristics of complexity.…”

“…Prior research focuses on various aspects of complexity in accounting through studies of organizational complexity (Bushman, Chen, Engle, and Smith 2004), financial reporting complexity (Li 2008;Miller 2010;Hobson 2011;Lehavy, Li, and Merkley 2011;Filzen and Peterson 2015), and information complexity (Plumlee 2003; 1 We refer to the accounting profession broadly as encompassing both accounting firms and professional accounting associations. We use the term accounting firms to refer to all firms in the accounting profession.…”