Limited Attention : Implications for Financial Reporting

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

9 Scopus Citations
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Detail(s)

Original languageEnglish
Pages (from-to)1991-2027
Journal / PublicationJournal of Accounting Research
Volume60
Issue number5
Online published3 Apr 2022
Publication statusPublished - Dec 2022

Abstract

I develop a theory to study the consequences of providing more detailed information to rationally inattentive investors. I first consider a simple data-provision problem and show that adding more data or detail in financial statements can make it more difficult for investors to extract information. Consequently, investors who have limited information-processing capacity may prefer less detailed information. I also show that when investors' decisions are complements, providing details in addition to a summary may reduce investors' welfare. More specifically, because of increased disclosure of details, a coordination failure could occur in investors' attention-allocation decisions. By showing that adding more detail in financial statements can lead to an information overload problem for investors, this study yields valuable insights for accounting standard setters.

Research Area(s)

  • information overload, rational inattention

Citation Format(s)

Limited Attention: Implications for Financial Reporting. / LU, Jinzhi.
In: Journal of Accounting Research, Vol. 60, No. 5, 12.2022, p. 1991-2027.

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review