Accountancy
Jinzhi Lu
Published in Journal of Accounting Research, April 2022
Dr Jinzhi Lu, Assistant Professor in the Department of Accountancy, develops a theory to study the consequences of providing more detailed information to rationally inattentive investors. He first considers a simple data-provision problem and shows 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. He also shows 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.
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