How Material Are Disclosures in Annual Reports?

The Financial Accounting Standards Board (FASB) and the Securities Exchange Commission (SEC) (collectively, “regulators”) have expressed concern over “disclosure overload,” or the concern that the sheer volume of disclosure in annual reports makes it difficult for investors to identify and incorporate relevant information into their decisions (White 2013). While academic research finds that annual reports have become longer and less readable (e.g., Dyer et al. 2017), regulators attribute disclosure overload in part to high levels of immaterial disclosure that make it difficult for investors to recognize the material, or relevant, information in these reports.

Interestingly, firms are not required to … Read more