News & Events


Stop Throwing the Book at Investors

by Justin Lahart
Publication: The Wall Street Journal Online

March 23, 2014

Most firms have filed their 10-Ks for last year and boy, must investors' arms be tired.

The annual financial reports filed with the Securities and Exchange Commission make for heavy reading. For the roughly 1,100 companies in the broad S&P 1500 index with a fiscal year that ended in December, the average size of a 10-K filing so far is 152 pages. Some would give Leo Tolstoy a run for his money: Trinity Industries' filing runs to a (no doubt riveting) 1,913 pages.

But even with financial disclosure, less can be more.

Annual reports weren't always so fat. Measured in terms of data, the average one for 2000 (stripped of computer formatting and the like) was 92 kilobytes, according to Tim Loughran and Bill McDonald of Notre Dame Mendoza School of Business. For 2012, it was 484 kilobytes.

To a degree, this reflects fuller disclosure, which is good; big banks, for example, need to be more voluble after the financial crisis. But loading investors down with details isn't always the same as real transparency. One way to judge clarity is to check 10-Ks against readability gauges, weighing factors such as sentence length and vocabulary.

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