Financial Reporting Complexity, Investor Sentiment, and Stock Prices

This study investigates whether financial reporting complexity affects the sensitivity of stock prices to general investor sentiment of difficult -to -value firms. Our findings indicate that investor sentiment has a larger effect on difficult -to -value firms with high financial reporting complexity than on those with low financial reporting complexity. These findings suggest that policymakers should consider that increased financial reporting complexity may aggravate investor sentiment's effect on the stock prices of difficult -to -value firms when valuations become more difficult. By doing so, we contribute to the existing literature by presenting additional evidence on the relationship between financial reporting complexity and sentiment -driven mispricing.