User Sophistication and the Specificity of Disclosure as Reflected in Disclosure of a Firm's Status as a Potentially Responsible Party

Abstract

This paper examines the relation between disclosure of descriptive, value-relevant information (a firm's status as a Potentially Responsible Party (PRP)) and user sophistication (high analyst following). We find that firms with lower analyst following are less likely to make specific disclosures of PRP status and more likely to be less specific in their annual reports than their 10-Ks. Also, we find that the less specific disclosures are valued less negatively. Finally, firms with low analyst following that disclose less specifically in their annual report than their 10-K have a less negative valuation of their PRP status than those whose disclosures are consistent.