Annual reporting, agency costs, and firm valuations

Shareholder valuations are economically significantly and statistically negatively correlated with the length of 10 K filings or their digital file sizes, whereas annual reports posted on corporate websites are uninformative. Firms with longer 10 K filings are likely to experience slower growth, lower profitability, experience free cash flow problems, and write off goodwill and intangible assets from past acquisitions. Lengthy filings are more damaging than suggested by three-year performance following report filing dates, suggesting that outside investors penalize firms for information asymmetries and associated agency costs. Full disclosure is best from the standpoint of long-term shareholder wealth, but managers could be maximizing short-term term returns that better match their investment horizons.