Do Financial Analysts Generate Value-Relevant Interpretive Information from 10-K Filings?

Abstract

Many papers in the academic and practitioner literature question the value-relevance of sell-side analysts’ interpretation of information in 10-K filings. This paper examines the information content of analysts’ forecast revisions that straddle 10-K filing dates, as compared to the information content of revisions straddling earnings announcement dates. Our evidence suggests that annual earnings forecast accuracy improves more and price discovery takes longer in relation to forecast revisions straddling 10-K filing dates. Our evidence also suggests that analysts underreact to information in 10-K filings to a greater extent than their underreaction to the information released around the time of earnings announcements. These results are consistent with the inference that increased uncertainty created by greater complexity, opacity, and volume of information in 10-K filings causes analysts to react with more restraint than the restraint associated with their reaction to information released around the time of earnings announcements. More generally, our results are consistent with the inference that analysts play an important interpretive role with respect to information in firms’ 10-K filings.