Professor Jinzhi Lu, of the Department of
Accountancy, develops a theory to study the
consequences of providing more detailed
information to rationally inattentive investors.
The study sheds light on a fundamental trade-off
between disclosing a summary versus disclosing
details, noting that while a summary contains less
information about fundamentals than details, it
is easier to process. Furthermore, the study finds
that when investors' decisions are complements,
reporting details together with a summary does
not always dominate reporting a summary alone.
The main reason for this surprising result is that
when investors care about the decisions of others,
they are induced to process details, even if doing
so is very costly. By uncovering a potential cost of
reporting details, the paper contributes a novel
insight into the consequences of providing detailed
information, an issue currently under consideration
by the Financial Accounting Standards Board in its
performance disaggregation project.
Lu, JinZhi. "Limited Attention: Implications for
Financial Reporting." November 2022; In: Journal of
Accounting Research. Vol 60, No. 5, pp. 1991-2027
Reference:
https://onlinelibrary.wiley.com/doi/full/10.1111/1475-679X.12432
